TOKYO, July 31 (Reuters) - Japan's shorter-dated bonds

extended declines on Thursday after the Bank of Japan kept its

policy rate unchanged, but offered a hawkish view towards the

inflation trend.

The two-year JGB yield rose 1.5 basis points

(bps) to 0.835%, hitting a day's high, while the five-year yield

rose 2 bps to 1.11%, before slipping to 1.105%.

Yields move inversely to bond prices.

The BOJ kept short-term interest rates steady at 0.5%, but

revised up its inflation forecasts, a sign that the central bank

will keep raising rates.

However, the hawkish shift was within market expectations as

Tokyo's trade deal with Washington cleared some uncertainty

about the economic outlook.

"The BOJ lifted inflation forecast for 2026 a bit, which is

neutral or gives some upward pressure on JGB yields," said

Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust

Asset Management.

Benchmark 10-year JGB futures fell as much as 0.2

yen, and was last down 0.11 yen at 137.87. It ended the morning

session down 0.12 yen.