The yields on the 20-year, 30-year, and 40-year JGBs dropped five, 5.5, and 5.5 basis points (bps), respectively, to 3.695%, 3.965%, and 4.035%. Yields move inversely to bond prices.

The two-year yield, the one most sensitive to BOJ policy rates, decreased 1.5 bp to 1.835%, while the five-year yield slipped two basis points to 2.230%.

Markets are pricing a near certainty that the BOJ will raise its policy rate by 25 basis points to 1.25% at its meeting next week, according to money market broker Tokyo Tanshi. Another increase to 1.5% is fully priced in, the data showed.

Economic data suggested Japan's economy was robust enough to weather a rate hike. Japan's real wages rose 2.4% in July from a year earlier, marking the biggest increase since May 2021, while another data release showed Japan's economy grew faster than initially estimated in the April-June quarter.

"We think that with underlying inflation already around 2%, the BOJ is increasingly expected to accelerate the pace of rate hikes based on a view that it's falling behind the curve versus the appropriate path of rate hikes," Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, said in a note.

The Ministry of Finance sold about 2.5 trillion yen (US$16.28 billion) of five-year JGBs on Tuesday, with demand that came in lower than the auction in August. The yield on the securities jumped to a record 2.31% last week.

The benchmark 10-year JGB yield eased four bps to 2.890%, edging down further from a 30-year high seen on Sept 2.