TOKYO, May 20 Japanese government bond prices began on a weaker footing on Monday, taking cues from signs of improvement in both the U.S. and Japanese economies as well as surging Japanese equities prices. * Investors looked ahead to the Bank of Japan's two-day policy meeting beginning on Tuesday, hoping the central bank would make adjustments to its bond market operations and smooth recent volatility. No major policy changes are expected. * "There is a perception that the BOJ is still coming up with the best way to conduct market operations under its massive easing scheme, which is still very new. It will take some time for markets to adjust," said a fixed-income fund manager at a Japanese asset management firm. * Japan's government upgraded its economic assessment in May for the first time in two months, according to its monthly report released on Monday, in a sign growth is accelerating as exports and factory output pick up. Japanese manufacturers' sentiment rose in May for a sixth straight month and turned positive for the first time in a year, a separate Reuters poll released on Monday showed. * The Japanese indicators came on the heels of Friday's Thomson Reuters/University of Michigan's preliminary reading on U.S. consumer sentiment. The overall index rose to 83.7 from 76.4 in the previous month, coming in above economists' expectations and reaching its highest level since July 2007. The Dow and the S&P 500 finished at fresh record highs after the report. Strong stocks and upbeat U.S. data undermines the appeal of fixed-income assets, and also adds to speculation the U.S. Federal Reserve might taper its bond-buying scheme if the economic recovery continues. * Also sapping demand for bonds, the Nikkei share average surged to a fresh 5-1/2-year high on Monday. * The yield on the 10-year cash bonds added 2.5 basis points to 0.825 percent. On Wednesday last week, it touched a high of 0.920 percent, its loftiest peak since April 2012. * The 10-year JGB futures contract ended morning trade down 0.40 point at 142.29 after falling as low as 142.17. * The five-year bond also fell, with its yield adding 2 basis points to 0.385 percent, moving back toward a two-year high of 0.455 percent on Wednesday last week. * JGB market sentiment recovered into positive territory ahead of this week's BOJ meeting, the latest weekly Thomson Reuters poll showed on Monday.