TOKYO, March 26 (Reuters) - Japanese government bond

(JGB) yields edged higher on Wednesday, as expectations that the

Bank of Japan will continue to raise interest rates this year

sent shorter-term bond yields up to more than 16-year peaks.

Both the 10-year JGB yield and five-year

yield rose 1 basis point (bp) to their highest

levels since October 2008 at 1.585% and 1.18%, respectively.

The two-year JGB yield, which corresponds more

closely with monetary policy expectations, ticked up 0.5 bp to

0.88%, a level last seen in June 2008.

Speaking in Japan's parliament on Wednesday, BOJ Governor

Kazuo Ueda said the central bank must raise rates if persistent

increases in food costs lead to broad-based inflation,

signalling the bank's resolve to continue weaning the economy

off monetary support.

A majority of investors expect another rate hike in July,

although some market players are betting the BOJ will move as

soon as May.

Yields moved in a tight range, however, as the fiscal year

in Japan draws to a close this week. Investors also had an eye

on an auction for 40-year JGBs scheduled for Thursday.

"Many market participants find it difficult to move into the

(fiscal year)-end, but we expect some rebalancing and extension

purchases from pension funds, a major participant in the

sector," as well as some demand from life insurers, Barclays

rates strategist Ayao Ehara and head of Japan FX/rates strategy

Shinichiro Kadota wrote in a research note.

The 40-year JGB yield was flat at 2.94% ahead

of Thursday's auction.

Tokyo consumer price index report and a summary of opinions

from the BOJ's monetary policy meeting last week, both due on

Friday, will be a point of focus later this week.

The 20-year JGB yield edged 0.5 bp higher to

2.305%, while the 30-year JGB yield climbed

1.5 bps to 2.61%.

Benchmark 10-year JGB futures slid 0.17 points to

137.31 yen.