Japanese government bond futures fell but were off an 11-month low on Friday, as comments from Bank of Japan Governor Masaaki Shirakawa helped cool speculation the central bank will boost interest rates in coming months to contain inflation.
JGBs plunged in early trade, with lead September futures sliding as low as 132.05, the lowest since June last year, as investors dumped bonds on overnight losses in US Treasuries and jitters before a news conference by Shirakawa.
But government debt trimmed losses after Shirakawa said on Friday that Japanese economic and price conditions were different from those in the United States and Europe, stressing that each nation should decide monetary policy based on its own conditions.
JGBs have been roiled in the past week due to surprisingly blunt inflation-fighting rhetoric from central bankers in Europe and the United States that has been seen as opening the way for a potential BOJ rate rise later this year.
"Shirakawa's comments suggested a BOJ rate rise is not imminent, helping soothe jitters among investors and prompting them to buy back JGBs," said Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Securities.
But Hasegawa said Shirakawa's remarks were unlikely to change the bear trend in the JGB market as they confirmed the BOJ's neutral stance, meaning the central bank could lift rates if inflation risks become bigger concerns than downside risks to the economy.
The BOJ kept interest rates steady at 0.50 percent on Friday, as widely expected. The central bank has left monetary policy unchanged since raising the overnight call rate target from 0.25 percent in February last year.
The BOJ kept its assessment of the economy unchanged in its monthly report released on Friday, but downgraded its view on exports and corporate profits.
September 10-year futures rose as high as 132.85 in evening trade before slipping back to 132.72 The lead futures contract ended the regular session at 132.35 down 0.86 point on the day.