Anticipation that the end is near for the BOJ's policy of force-feeding the market with excess funds pushed the 10-year yield to a 14-month high of 1.63 percent in November after sliding to a two-year low around 1.165 percent in June.
Shorter maturities came under particular selling pressure, with the two-year yield rising in November to its highest level since early 2001 - 0.335 percent.
Yields more or less settled into range as the year wound down, with investors waiting to see when overnight lending rates will rise after the central bank ends its zero-rate policy. The BOJ is widely expected to end the policy in April-June 2006.
"The market is waiting to see what is going to happen after the BOJ ends its super-easy policy, which made it difficult to buy or sell bonds towards the end of the year," said Tetsuya Miura, bond strategist at Shinko Securities.
Some analysts were surprised by the extent of the fall in yields on Friday, which was helped by a slide in Tokyo stocks and short-covering in exceptionally thin trading ahead of the New Year holidays.
"JGBs are being supported by the fall in the Nikkei, as well as investors buying back short positions," said Akihiko Inoue, market analyst at Mizuho Investors Securities.
"But when you think about it, the Nikkei remains above 16,000 and, level-wise, the 1.4 percent region (for 10-year bonds) is too low, so we're not likely to see too much more buying from this point on," Inoue said.
Japan's financial markets will close on January 2 and 3 before resuming for a half-day of trading on January 4. The 20-year yield hit a three-month low during the half-day session on Friday. Ten-year JGB futures for March delivery ended the day 0.32 point higher at 137.35.
Bond prices took a lead from the Nikkei share average, which slipped 1.42 percent to 16,111.43. Still, the Nikkei remained near a five-year high after posting a gain of 40.24 percent for the year, its biggest yearly advance since 1986.
The yield on the benchmark 10-year cash JGB slid 3.5 basis points to 1.470 percent, it lowest level since the beginning of the month.
The yield on the 20-year bond was 2.5 basis points lower on Friday at 1.975 percent, its lowest level since late September.
In local currency terms, Japan has produced the lowest overall returns for investors this year among developed nations.
JGBs have returned only 0.65 percent since the beginning of the year compared with 3.01 percent for US Treasuries and 5.18 percent for German bunds, according to J.P. Morgan Chase.
Data this week showing an uptick in consumer prices and solid industrial production offered more evidence that Japan will soon free itself from more than seven years of deflation.
This could intensify pressure on the Bank of Japan to end its so-called quantitative easing policy, which would weigh on bonds.
Many analysts expect selling in JGBs to continue in the new year, with investors still looking to the Nikkei for guidance.