Japanese government bonds pushed higher on Friday, with investors relieved after the European Central Bank (ECB) failed to signal any further tightening of monetary policy and a 10-year bond auction the previous day went better than expected. The Nikkei stock average slumping to its longest losing streak in over half a century provided bonds with further support.
The ECB lifted rates to 4.25 percent on Thursday as widely expected, but comments from ECB President Jean-Claude Trichet that the central bank did not have a policy bias helped cool expectations for more such hikes later this year.
The ECB's move to tighten rates to contain inflation, even as euro zone growth shows signs of faltering, was seen as a factor that could open the door for the Bank of Japan to also tighten monetary policy in the months ahead. The five-year yield dropped 1.5 basis points to 1.235 percent, while the two-year yield was down 1 basis point at 0.830 percent.
Earlier this week, the BOJ's quarterly tankan report showed sentiment at big Japanese manufacturers hitting a five-year low but not dropping as sharply as economists had expected.
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