Five-year bonds underperformed, however, with the yield up 0.5 basis point to 0.185 percent ahead of an auction of 2.5 trillion yen ($31.70 billion) worth of debt of the same maturity later in the day.

Yields on benchmark 10-year debt inched down 0.5 basis point to 0.745 percent after hitting 0.740 percent to their lowest since June 2003.

The 10-year JGB futures rose 3 ticks to 144.45 after trading as high as 144.48 to a nine-year peak.

"Domestic demand is very strong but I don't see any upside (in the five-year bond price) after the auction," said Akito Fukunaga, chief rates strategist at Royal Bank of Scotland in Tokyo.

"Of course, the longer-end is affected by the global sentiment. I don't think it is attractive on the curve below 0.2 percent (for the five-year debt)."

The 20-year yield slipped 1.5 basis points to 1.530 percent, the second day in a row to hit a near two-year low, while that on the 30-year debt also dipped 1.5 basis points, to 1.735 percent.

Despite renewed worries over the euro zone following the German chancellor's comments and a firmer yen, Tokyo's Nikkei share average gained 0.8 percent on Thursday morning. Equities and debt tend to move in opposite direction.

Merkel was quoted in a media report as saying: "We have not yet shaped the European project so that we can be sure that everything will turn out well, we still have work to do."

"Generally speaking, the bond market lags the stock market ... for the past 10 to 20 years," Fukunaga said.

"It's very difficult to figure out the timing but in a few months bonds will follow the stock movement," he said, adding that JGB yields would move higher.