Japanese government bond futures soared to a nine-month high on Friday after soft data on Japanese consumer prices dampened speculation that the Bank of Japan will lift interest rates this month.
The benchmark 10-year yield hit a nine-month low after data showed that core consumer prices rose by a narrower-than-expected 0.1 percent in October from a year earlier.
The data helped fuel expectations that the pace of rate tightening by the BOJ will be very slow after an expected rate increase in the January-March quarter, analysts said.
Such a view prompted buying of longer-dated paper as investors bet its yields may rise more slowly than yields of shorter-dated notes.
"The consumer price data was a factor behind today's rally," said Mitsumaru Kumagai, chief fixed-income strategist at Merrill Lynch Japan. "But robust demand was an even bigger factor."
Many investors were keen to buy JGBs as many investors had hoped for higher yields and are now behind target.
Expectations that the BOJ will raise interest rates only gradually have prevented bond yields from rising sharply since July, when the central bank lifted the overnight call rate to 0.25 percent in its first rate increase in six years.
December futures shot up to 135.54, the highest level since early March, which was just before the BOJ ended its "quantitative easing" policy. The contract ended the regular session up 0.38 point at 135.47.
Longer maturities led the market's gains, with the 10-year yield bumping down 4.5 basis points to 1.600 percent after touching 1.595 percent, its lowest level since March.
A large amount of government debt is due to be redeemed in December, and investors were expected to reinvest the funds in longer-dated paper, analysts said.
The 20-year yield slid 6 basis points to an eight-month low of 2.040 percent. The 30-year yield plunged 7 basis points to an eight-month low of 2.250 percent.
Meanwhile, the two-year yield was down a basis point at 0.800 percent. Limited gains in the maturity helped to squeeze the two-year/10-year spread to 80. The spread briefly narrowed to 79.5 basis points, its lowest level in 3-1/2 years. The five-year yield was down 2.5 basis points at 1.165 percent.
Adding to gains was a rise in US Treasuries, whose 10-year yield slid to the lowest level in 10 months on Thursday, after weak data on Midwest business activity.
March euro-yen futures climbed 2.5 basis points to a one-month high of 99.330, before pulling back to 99.320 and indicating a three-month interbank rate of 0.680 percent by then, compared with 0.502 percent now.
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Other data on Friday showed that overall household spending in Japan fell less than expected in October from a year earlier, while more traders and analysts that the BOJ could raise rates at its policy meeting on December 18-19.
Analysts said Friday's soft price data did little to change the market's view that rates will rise by early next year.
Some said there was still a chance of a hike later this month, while others said the consumer price figures lowered expectations of an early lift.