Market scepticism that a summit of European leaders in Brussels on Thursday and Friday will resolve that region's debt woes lifted prices of US Treasuries overnight, which underpinned demand for JGBs.

Japan's parliament is expected to approve on Tuesday a plan to double the sales tax to 10 percent over three years, marking a first step in cleaning up the country's balance sheet.

The Japanese government on Monday began considering compiling a supplementary budget for the current fiscal year, possibly in autumn, to stimulate the economy, Kyodo news agency reported, citing government sources.

"The sales tax bill's passage is expected, so it can't be said to be a strong positive factor for the market, but it does reduce the chance of a negative factor. If it hadn't passed, it would have been quite negative for JGBs," said a fixed-income fund manager at a Japanese asset management firm.

The Ministry of Finance's auction of 2.7 trillion yen of two-year notes on Tuesday is expected to proceed smoothly. The Bank of Japan now purchases bonds with up to three years left to maturity, and is currently buying much of the new issuance of two-year notes.

The coupon was set at 0.1 percent for the seventh consecutive two-year sale, matching the interest the Bank of Japan pays on its current account excess reserves.

The lowest accepted price at last month's two-year sale was 100, and the bid-to-cover ratio was a strong 9.79, the highest since June 2005. That sale was conducted again due to an unprecedented glitch.

The 10-year JGB futures contract for September ended morning trading up 0.07 point at 143.77.

The 10-year JGB yield slipped 1 basis point to 0.820 percent, edging toward a nine-year low of 0.790 percent hit in June 4.

The 20-year yield was flat at 1.665 percent.