* Speculation Kuroda-led BOJ will step up buying in 20- and 30-year bonds
* Investors sceptical Kuroda can boost inflation to 2 pct in 2 yrs
* 30-year yield down 9.0 basis points, biggest daily fall since mid-2010
* Japanese investors buying ahead of March 31 book-closing
* JGB futures hit record high, 5-year yield at record low
TOKYO, March 4 (Reuters) - Japanese government bonds surged on Monday, with yields on long maturities posting their biggest fall in two and a half years, on speculation the Bank of Japan will step up buying of long- dated bonds under a new governor.
Sharp gains in longest maturities came even as Haruhiko Kuroda, Bank of Japan Governor nominee, vowed to end Japan's deflation and lift inflation to two percent in about two years, reflecting investors' doubts monetary policy can deliver the magic number.
"Of course buying 10-year bonds yielding just 0.6 percent makes no sense at all if inflation is to rise indeed to two percent in two years," said a trader at a major Japanese brokerage.
"To me, the market seems a bit overheated now. But you can't go short in this market," he added.
The 30-year bond yield fell 9.0 basis points -- its biggest daily fall since mid-2010 -- to 1.675 percent, its lowest level since August 2010.
The decline came even after its 14.5 basis point fall last week, its biggest weekly decline since December 2008.
The 20-year yield fell 8.0 basis points to 1.490 percent , breaking below its 2010 trough of 1.510 percent to hit its lowest level since August 2003.
"Speculation is rising that, under Kuroda, the BOJ will buy more in 20- and 30-year bonds. If that happens, maybe the 20-year yield could fall to around 1.2 percent," said a trader at a Japanese bank.
Unlike the Federal Reserve, which buys a large amount of long-dated government debt, the BOJ's bond buying has long been centred on short maturities. It fears that having a large amount in long-dated bonds on its balance sheet will jeopardize its policy flexibility in the future.
The central bank currently plans to buy a total of 41.6 trillion yen in bonds this year -- 20.0 trillion yen in an asset purchase programme and 21.6 trillion yen as a part of money market operations.
Of the total buying, however, only 1.2 trillion yen is in maturities between 10 and 30 years, about three percent of its total bond buying.
In his confirmation hearing in parliament on Monday, BOJ nominee governor Kuroda said bank was not buying the right volume or type of assets, although he did not specifically mention buying in super-long bonds.
RUSH BEFORE BOOK-CLOSING
While many Japanese investors are sceptical of Kuroda's pledge to boost inflation, their latest foray into longest maturities also reflected the need to put their portfolio in order by March 31, the end of financial year, traders noted.
Some of them had been underweight on superlongs maturities precisely for fear that Prime Minister's Shinzo Abe's loose monetary policy plan might spark future inflation.
"Right now, all they care is how they look like this financial year. They don't care about inflation that may or may not happen in two years," said the Japanese brokerage trader, adding the market could change its course after the turn of new financial year.
The yield on the benchmark 10-year JGB fell 5.5 basis points to 0.600 percent, its lowest level in nearly 10 years, even ahead of Tuesday's 10-year JGB auction. The Ministry of Finance plans to sell 2.4 trillion yen ($25.7 billion) of 10-year JGBs.
The price of 10-year JGB futures, which reflects the cheapest-to-deliver seven-year sector, rose 0.27 point to 145.32 , an all-time high.
The five-year yield dipped 2.0 basis point to 0.095 percent , a record low.
Painfully low yields on shorter maturities, a result of Abe's campaign for aggressive easing, is another reason forcing investors to buy buying longer-dated bonds to earn income.
"There's no point buying five-year bonds. So by default, they are buying long-dated bonds even though that isn't a healthy investment strategy," said Tohru Yamamoto, chief bond strategist at Daiwa Securities.
In addition to domestic factors, JGBs also had tailwinds from concerns about global economy, stemming from U.S. spending cuts and from Italy's political crisis that threatens euro zone stability.