TOKYO, Sept 22 (Reuters) - Japanese government bonds

(JGBs) extended declines on Monday, with the two- and five-year

yields hitting 17-year highs, as investors braced for a possible

interest rate hike following hawkish signals from the Bank of

Japan.

The two-year JGB yield rose 1.5 basis points

(bps) to 0.93%, its highest level since June 2008. The five-year

yield jumped 3.5 bps to 1.235%, its highest since

July 2008.

Yields move inversely to prices.

The BOJ kept its interest rate steady at its policy meeting

that ended on Friday, but two board members voted against the

decision, raising bets that the central bank could raise rates

by the end of this year.

"Bets for a BOJ rate hike have strengthened after the policy

meeting, which have pushed the yields higher," said Miki Den, a

senior Japan rate strategist at SMBC Nikko Securities.

The yield curve flattened on Friday as concerns over fiscal

health eased after Sanae Takaichi, a candidate for the Liberal

Democratic Party leadership election, toned down her appeal for

government spending.

Swap rates indicated on Monday a 94.4% chance of the BOJ

raising its policy rate by 25 bps to 0.75% in December.

The 10-year JGB yield rose 2 bps to 1.66%,

its highest since July 2008.

The 20-year JGB yield rose 2 bps to 2.65%.

The 30-year yield rose 2.5 bps to 3.175%,

while 40-year JGBs had not been traded, as of

0530 GMT.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu)