TOKYO, May 27 (Reuters) - Japan's Nikkei share average edged up on Monday to track Wall Street higher, while the financial sector rallied to give the index an additional boost as Japan's government bond yields hit fresh decade peaks.

After slumping at the end of last week, the benchmark index rebounded, following a rise in U.S. stocks overnight on Friday on news of an improving consumer outlook on inflation.

"Risk mood is upbeat today after softer inflation expectations from the (University of Michigan) sentiment survey," said Charu Chanana, global market strategist and head of FX strategy at Saxo.

The Nikkei closed up 0.66% at 38,900.02, while the broader Topix rose 0.87% to 2766.36, with trading volume thin due to U.S. and UK public holidays.

At the same time, questions about tapering of the Bank of Japan's bond purchases and further policy rate hikes remained in focus, as BOJ Governor Kazuo Ueda and his deputy Shinichi Uchida spoke in the Asian morning and government yields continued to climb.

Shares of financial firms, which tend to benefit in a higher interest rate environment, rose in the afternoon session in response.

The insurance sector was up 3.3% to lead gains among the Tokyo Stock Exchange's 33 industry sub-indexes.

While the Nikkei touched the closely watched 39,000 level this month, it has struggled to maintain the key range amid monetary policy uncertainty both abroad and domestically, as well as conservative revenue outlooks from Japanese companies.

The index rose to an all-time high of 41,087.75 on March 22, but retreated the following month.

On Monday, chip-related shares largely advanced, following a strong performance by their U.S. peers on the back of Nvidia earnings last week.

Advantest, which counts Nvidia among its customers, rose 1.4%, while AI-focused startup investor SoftBank Group gained 1.1%.

Insurance firm Tokio Marine Holdings jumped 3.7%.

Among other index heavyweights, Uniqlo parent firm Fast Retailing advanced 1.3%, and Toyota Motor was up 1.7%. (Reporting by Brigid Riley; Editing by Sohini Goswami)