Japanese government bonds gained ground in early Tokyo trading, recovering from Monday's selloff. The technical rebound came as markets reacted positively to President Trump's decision to postpone a military strike on Iran, creating space for diplomatic negotiations. This unexpected pause in hostilities has injected optimism into the bond market, with traders adjusting their positions ahead of potential talks.

The prospect of a U.S.-Iran peace deal has fueled expectations of lower oil prices, which would help alleviate inflationary pressures in Japan. This development could temper fears about aggressive rate hikes by the Bank of Japan. Bond yields fell across the curve, with the 10-year JGB yield declining 1.5 basis points to 2.725%, reflecting the improved market sentiment.

Longer-dated Japanese bonds experienced more pronounced declines, with the 30-year yield dropping 2.5 basis points to 4.075%. The technical rebound suggests the market is positioning for a potential resolution to the geopolitical tensions. Traders will closely monitor any diplomatic progress between Washington and Tehran, as the outcome could further influence Japan's monetary policy trajectory.