"The JGB story is leading the futures flow in the Nikkei. Some of the CTAs basically are buying JGBs and selling futures," a senior dealer at a foreign bank said, referring to an Asahi Shimbun newspaper report.
CTA stands for commodity trading advisers and refers to hedge funds that bet on futures.
The Asahi newspaper said the BOJ was considering expanding the target of its asset purchase programme from two-year bonds to bonds with maturities of up to five years.
The BOJ is due to meet on Friday and market consensus is that it will ease policy further by expanding its 65 trillion yen ($796.5 billion) asset-buying and loan programme by 5 trillion or 10 trillion yen, with the increase to be used to buy
government bonds.
The Nikkei slipped 0.3 percent to 9,533.48 points after trading as high as 9,643.27 earlier in the session as a pledge to raise the size of the International Monetary Fund's debt crisis rescue fund lifted sentiment.
The broader Topix index was down 0.3 percent at 809.16, while yields on the five-year JGB eased 1.5 basis points to 0.265 percent, their lowest level since October 2010.
Leading world economies on Friday pledged $430 billion in new funding for the IMF, more than doubling its lending power in a bid to protect the global economy from the euro zone debt crisis.
Among the most heavily traded stocks was Mitsui Chemicals Inc, which shed 5 percent after the company said there had been an explosion and fire at its glue factory, killing one employee and injuring some 20 workers and nearby residents.
Trading volume on the main board after the halfway point was light, at 40 percent of its full daily average for the past 90 days.
Tokyo Steel Manufacturing Co Ltd lost 7.3 percent after the company reduced its parent annual dividend to 5 yen from 8 yen per share following an operating loss of 11.3 billion yen for the year ended March 31.
JPMorgan expected Japanese companies to show some improvements in January-March earnings, however.
"Overall, we expect a gradual rise in more positive earnings visibility. Positive cyclical developments, tailwinds from the currency, as well as easier year-over-year comparisons after last year's disaster-affected earnings plunge make this likely," it said in a report.
"Evidence of this has come through in analysts' earnings revision ratio improving sharply in recent months."
The Topix's one-month earnings momentum - analysts' earnings upgrades minus downgrades as a percentage of total estimates - turned positive to 3.6 percent in March from minus 6.6 percent in February, according to Thomson Reuters I/B/E/S.
Yakult Honsha Co Ltd jumped 12.1 percent after Kyodo News said French food firm Danone may increase its stake in the Japanese drink maker to 28 percent from 20 percent.
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