The benchmark 10-year yield's rise halted at a nine-month peak of 1.300 percent as investors such as publicly affiliated financial institutions came in as buyers, traders said.

But market participants were unsure whether the 10-year had found a firm ceiling at 1.300 percent given the recent advance in Tokyo stock prices, with the Nikkei hitting a nine-month high on Monday, and a rise in U.S. Treasury yields.

"It is difficult to predict whether the 10-year JGB yield will stop rising at 1.3 percent, as the recent move higher is due to an improvement in economic outlook, both in Japan and abroad," said Shinji Ebihara, a rates strategist at Credit Suisse.

"Under such circumstances investors are content to stick to bargain hunting as they begin considering their bond investments for the approaching fiscal year-end and beyond."

March 10-year JGB futures were down 0.06 point at 139.00 after marking a seven-week low of 138.81.

NIKKEI GAIN

Buoyed by factors including a brighter domestic corporate growth outlook and improving prospects for the U.S. economy, the Nikkei gained 0.5 percent to 10,592.

"There is room for yields to rise further if the Nikkei goes up to 10,700. Few in the market feel that short-covering alone can slow the rise in yields indefinitely," said Takeo Okuhara, a fund manager at Daiwa SB Investments.

"In addition, Bernanke's remarks bear watching. Given the improved unemployment rate and other signs of economic recovery in the United States, if and how his remarks change regarding the Fed's loose monetary policy will be key."

Federal Reserve Chairman Ben Bernanke will testify on the U.S. economy before the U.S. House Budget Committee on Wednesday.

In focus will be his stance on monetary policy and the economy following Friday's January jobs numbers, which the market interpreted as the latest sign that the U.S. economic recovery is intact.

Treasury yields -- which JGB yields follow fairly closely -- have risen significantly this month as inflation concerns and upbeat data have fanned prospects of the Fed ending its very loose policy earlier than initially anticipated.

The five-year JGB yield rose 1.5 basis points to 0.565 percent.

The benchmark 10-year yield was up 0.5 basis point at 1.285 percent after hitting its nine-month high of 1.300 percent.

The 20-year yield was up 0.5 basis point at 1.995 percent after its brief rise to 2.010 percent invited bids from real money investors such as pension funds, players said.

The 30-year yield edged up 0.5 basis point to 2.180 percent.

The market was approaching Tuesday's 300 billion yen ($3.6 billion) 40-year JGB auction with a measure of optimism with the recent rise in its yield and cheapness relative to other superlong maturities seen as a draw to investors, particularly those such as life insurers looking to match the duration of the liabilities with their assets.

Japan's Ministry of Finance plans to increase the 40-year issuance amount for fiscal 2011/2012 to 1.6 trillion from 1.2 trillion in fiscal 2010/11.

Analysts said the advantages from improved liquidity could outweigh the negative aspects of a supply increase.

Forty-year JGBs were only introduced in 2007 and an annual issuance amount of 1.6 trillion yen for fiscal 2011/2012 would still be much lower than the 13.2 trillion for the 20 years and the 5.6 trillion for the 30 years.