BS: Japan’s Bonds Advance as Yen Gains May Spur Further BOJ Easing
Aug. 18 (Bloomberg) -- Japanese bonds rose, pushing 10-year yields to the lowest level in seven years, on speculation the strengthening yen will add pressure on the central bank to ease monetary policy further.
Bond futures gained for a sixth day before a government report tomorrow that economists said will show Japan’s all industry index fell in June, adding to signs the recovery is slowing. Bonds also advanced after the Federal Reserve bought $2.551 billion of Treasuries yesterday in the first outright purchase of U.S. government debt since October to keep borrowing costs low.
“The Bank of Japan will have to do something, though it’s questionable the central bank alone will be able to change the current trend,” said Akitsugu Bandou, senior economist in Tokyo at Okasan Securities Co. “Demand remains strong for bonds, so yields should remain in a downtrend.”
The yield on the 1.1 percent bond due June 2020 fell three basis points to 0.915 percent as of 3:51 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.273 yen to 101.667 yen. The yield is at the lowest level since Aug. 13, 2003.
Ten-year bond futures for September delivery rose 0.18 to 142.88 at the afternoon close at the Tokyo Stock Exchange. They climbed to 142.91 yesterday, the highest for a benchmark contract since June 2003.
Bank of Japan
The yen has gained 14 percent against a group of 10 developed-world currencies, the best performer of the group, Bloomberg Correlation-Weighted Currency Indexes show. The currency climbed to 84.73 per dollar on Aug. 11, the strongest since July 1995.
BOJ Governor Masaaki Shirakawa and Prime Minister Naoto Kan may meet Aug. 23 to discuss gains in the yen that are threatening the nation’s export-led recovery, Fuji Television reported yesterday.
Kan asked his economic ministers this week to consider fresh measures ahead of the expiry of subsidies for cars and electronics that have helped sustain growth. National Strategy Minister Satoshi Arai said he will meet Kan on Aug. 20 to discuss the state of the economy.
“As expectations for additional monetary easing linger, the question is what can the BOJ actually do?” said Keiko Onogi, fixed-income strategist at Daiwa Securities SMBC Co. in Tokyo. “As bonds stay in a positive environment, investors find it difficult to sell them.”
Japan’s government bonds have handed investors a return of 3.5 percent this year, according to an index compiled by Bank of America Corp’s Merrill Lynch unit. An index of U.S. Treasuries has returned 7.9 percent
--Editors: Nicholas Reynolds, Rocky Swift
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.
