By Yoshiaki Nohara June 28 (Bloomberg) -- Japanese long-term bonds fell on speculation political scrutiny over the government’s fiscal strategy will increase toward next month’s mid-term elections. Twenty-year yields rose from near the lowest level in more than a year as a technical indicator signaled their drop last week was excessive. The government said in a fiscal strategy released on June 22 it aimed to balance its books within 10 years, restrict debt sales and overhaul the tax system. “People know there’s not enough money to make the strategy work,” said Akitsugu Bandou, senior economist in Tokyo at Okasan Securities Co. “As elections near, people will find contradictions in the plan. Yields shouldn’t have come down this much when you think about domestic factors.” The yield on the 2 percent bond due June 2030 increased one basis point to 1.885 percent at 3:06 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.148 yen to 101.668 yen. Twenty-year yields touched 1.865 percent on June 25, the lowest since February 2009. A basis point is 0.01 percentage point. Ten-year yields rose half a basis point to 1.15 percent. Bond futures for September delivery gained 0.03 to 141.09 as of the afternoon close at the Tokyo Stock Exchange. Benchmark yields may rise to 1.2 percent by the end of September, according to Okasan’s Bandou. 20-Year Yields The 14-day relative strength index on 20-year yields dropped below the 30 level last week, suggesting the securities are poised to change direction. “People are not sure if risk premiums for bond yields will actually disappear,” said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s largest lender by assets. “Declines in long- term yields were too much, setting them up for a rebound.” Group of 20 leaders said in a statement released yesterday that advanced economies will aim to at least halve deficits by 2013 and stabilize debt-to-output ratios by 2016. “Japan got special treatment in the deficit-cutting plan, singled out for the fact that the nation just unveiled a strategy to cut the primary fiscal deficit ratio to gross domestic product in half in five years,” said Shinji Nomura, chief debt strategist at Nikko Cordial Securities Inc. “Still, the feasibility of the strategy, including the target to balance the budget by fiscal 2020, is questionable.” Slowing Recovery Bond losses were limited after reports showed the nation’s retail sales grew at the slowest pace since January and the U.S. economy expanded at a lower rate than previously estimated. “The global outlook is deteriorating as market participants try to grasp how Europe’s fiscal crisis will harm economies,” said Akito Fukunaga, Tokyo-based chief rates strategist at Royal Bank of Scotland Group Plc. “Yields will struggle to rise.” --With assistance from Nobuyuki Akama in Tokyo. Editors: Nate Hosoda, Nicholas Reynolds To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

Source