“Uncertainties over the outlook for the global economy are growing as the economies in the U.S. and China have been doing worse than people anticipated while Europe remains weak,” said Mika Ikeda, an economist at Nomura Securities Co. in Tokyo.

Orders from chemical makers and aerospace manufacturers were among sectors that led the declines, according to today's report. Given that a separate central bank survey released last week showed companies plan to increase outlays this year, today's report may just be a “one-off decline,” Ikeda said.

Japan posted a 4.4 trillion yen trade deficit in the fiscal year that ended March 31 as energy imports rose and exports fell due to the yen's gains and weak demand in Europe and Asia.

Income from investment abroad, which includes interest payments and dividends on equities and debt securities, has served as a buffer against a deficit in the current account balance.

The economy grew at an annualized 4.7 percent pace in the first three months of this year, a pace which probably cooled to 2 percent in the second quarter and about 1.5 percent in the last 6 months of 2012, according to a Bloomberg survey of economists.

Eoin Treacy's view Euroyen 3-month futures contracts traded within 5 basis points of par between 2001 and 2003 before trending lower until 2008. The rate rebounded sharply in 2009 and has been ranging with a very mild upward bias since early 2011. It rallied sharply on Friday and again today to test the upper side of the two-year congestion area and a clear downward dynamic would be required to question potential for some additional upside.

JGB futures have returned to test the October peak above 144 and a clear downward dynamic, sustained for more than a day or two would be required to check potential for some additional higher to lateral ranging.

As yields compress, the spread between the Japanese 10-year and 2-year has been trending lower suggesting a deteriorating economic outlook. The strength of the Yen, the imminent “grey tsunami” and the aftermath of last year's natural disasters represent economic challenges which have yet to be overcome and help to explain the momentum of the fixed income market, at least for now.