Japanese government bonds climbed on Monday, pushing yields near five-month lows as Tokyo shares tumbled on deepening concerns about the U.S. and European economies, stirring expectations that the Bank of Japan may cut interest rates in the coming months.

Dismal U.S. jobs data on Friday bolstered expectations for a Federal Reserve rate cut while the European Central Bank signalled last week the possibility of lower rates ahead, spurring speculation that the BOJ may also reduce rates in an effort to help fight the credit crisis.

Financial strains have deepened in Europe, with Germany and Denmark having to guarantee bank deposits to calm nerves, while BNP Paribas bought 75 percent of the banking arm of Fortis.

"Overseas banking troubles are reinforcing market expectations for a possible monetary easing by the BOJ," said Tetsuya Miura, a bond strategist for Shinko Securities.

The BOJ is widely expected to keep interest rates steady at 0.5 percent at its two-day meeting ending on Tuesday.

But analysts said investors will focus on comments by BOJ Governor Masaaki Shirakawa after the meeting for clues to a possible BOJ rate cut.

December 10-year futures rose 0.59 point to 138.27, after climbing as much as 0.81 point to 138.49 at one stage.

The benchmark 10-year yield slipped 6.5 basis points to 1.380 percent, near a five-month low of 1.375 percent hit in mid-September after Lehman Brothers collapsed and intensified banking sector woes.

Analysts said an ongoing liquidity shortage paralysing global money markets was heightening fears about a sharper and longer slowdown in world economies, convincing more investors to expect a possible BOJ rate cut and lower JGB yields.

The five-year yield fell 6.5 basis points to 0.915 percent, in sight of a five-month low of 0.895 percent touched last month.

The two-year yield dropped 5 basis points to 0.680 percent, a tad above a five-month low of 0.615 percent struck last month and the BOJ's policy target rate.

Swap contracts on the overnight call rate now show that investors see a roughly 60 percent chance of a 25 basis point rate cut by the BOJ early next year, up from 40 percent late last week.

The market has already moved to see a 50 basis point cut in the Fed's 2 percent funds rate at its policy meeting later this month. Friday's U.S. payrolls data showing a sharp 159,000 fall in jobs reinforced expectations for a Fed easing.