Japan's ruling party is expected to fare poorly at an election on Dec 16. Main opposition party leader Shinzo Abe, likely Japan's next prime minister, has called on the central bank to take steps such as adopting interest rates of zero or below. This has led to selling pressure on longer maturities and caused the yield curve to steepen.
The current 10-year cash JGB yield inched down half a basis point to 0.710 percent, its lowest level since June 2003.
"It's not a rally that made them touch this level, but more of a gradual 'no reason to sell,'" said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.
Month-end buying by pension funds to extend the duration of their portfolios also supported bonds, market participants said.
"We don't expect this rally to continue, but we have extension trades this week, and the demand/supply balance will improve next month. The situation of domestic investors having excess cash hasn't changed at all, and I don't think they are willing to go short," Shimizu added.
The benchmark 10-year JGB futures price ended up 0.04 point at 144.83, after briefly rising in the morning session to 144.87, its highest level since June 2003, when futures hit a record high of 145.09.
Yields on 20-year bonds added half a basis point to 1.670 percent, with their spread over 10-year yields ticking up to 96 basis points, the widest since July 1999.
Yields on 30-year bonds also added half a basis point to 1.930 percent.
"Month-end buying will support prices this week, but there are still expectations of more BOJ easing to come, which will weigh on prices at the long end," said a fixed income fund manager at a Japanese trust bank.
BOJ board member Sayuri Shirai said on Thursday there was a risk that price growth could undershoot the central bank's forecast, as the overseas slowdown keeps the economy on a weak footing.
The BOJ set a 1 percent inflation target in February and has eased monetary policy four times so far this year.
Weekly capital flows data released by the Ministry of Finance on Thursday showed that Japanese investors remained net buyers of foreign bonds for the seventh straight week, buying a net 115.3 billion yen in the week through Nov. 24.