Tokyo's Nikkei stock average shed 2.1 percent on Friday but that only provided limited support for JGBs. "The surrounding environment seems JGB supportive, but the yen will have to strengthen even more and stocks slide further for bonds to react more," said Shinji Nomura, chief fixed-income strategist at Nikko Cordial Securities.
"The Nikkei may be down but it is still far above its trough hit in November. From a wider perspective economic fundamentals are still better than previously expected, boosted by external demand." Data released earlier this week showed Japan's exports rose a higher-than-expected 12.1 percent in December from a year earlier, which economists said lessened the chance of Japan slipping into a double-dip recession.
On the other hand, numbers released on Friday also showed that the Japanese economy remained gripped by deflation, a factor that has forced the Bank of Japan to maintain a very easy monetary policy. Japan's core consumer prices dropped 1.3 percent in December from the previous year, marking their tenth straight month of decline.
"The data confirms that deflation will persist, and that the central bank will continue toiling to counter falling prices as it vowed to do," said Koji Ochiai, senior market economist at Mizuho Investors Securities.
Many speculate that the central bank, recently under political pressure to do its share to support the economy, could ease further if deflation persists. March 10-year JGB futures dipped 0.04 point to 139.51 after hitting 139.71, their highest since the end of December. The contracts were down 0.21 point on the month.
The 20-year yield rose 1.5 basis points to 2.115 percent. The benchmark 10-year yield edged up 0.5 basis point to 1.315 percent, about 3 basis points higher on the month. The five- and two-year yields were unchanged at 0.490 percent and 0.155 percent respectively. The five-year/20-year yield spread widened 1 basis point to 162.5 basis points, a touch lower on the month.