TOKYO, March 5 (Reuters) - Japanese government bond (JGB) yields edged down on Tuesday after an auction for the 10-year bond saw decent demand despite caution ahead of a possible exit from the Bank of Japan's (BOJ) negative interest rate policy later this month.

The 10-year JGB yield fell 1 basis point (bp) to 0.700% following the auction results.

Although there were concerns with the 10-year yield at a lower level, analysts said Tuesday's auction results for the bond of the same maturity were decent.

"Banks may be recovering their positions for carry purposes and there seems to have been a certain amount of buying even with the yield at its current level," said an analyst at a domestic securities firm.

The yield, which moves inversely to bond prices, rose only as high as 0.725%, compared with a peak of 0.745% on the day of last month's auction.

The bid-to-cover ratio at the auction was 3.24, down from 3.65 in February, suggesting slightly weaker demand, but still higher than the bid-to-cover ratio of 2.90 seen in January.

Yields are expected to climb higher after the BOJ normalises its ultra-loose monetary policy. Market players bet the top bank could normalise its policy at its March 18-19 meeting.

Core inflation in Japan's capital re-accelerated in February above the central bank's 2% target, data showed earlier on Tuesday, a sign conditions for ending negative interest rates were falling into place.

The latest data comes after BOJ chief Kazuo Ueda said last week that it was too early to conclude that inflation was close to sustainably meeting the central bank's target.

Still, with the global outlook and domestic economic situation looking a littler brighter despite some bumps, attention on the BOJ's March meeting will be high.

The 20-year JGB yield fell 1 bp to 1.455%, and the 30-year JGB yield was down 0.5 bp to 1.760%.

The two-year JGB yield ticked flat to 0.170%, while the five-year yield slipped 0.5 bp to 0.360%. (Reporting by Brigid Riley and Mariko Sakaguchi; Editing by Sohini Goswami)