BLBG: Japan Bonds Have Biggest Two-Week Gain Since 2008 on Central Bank Outlook
Japan’s benchmark bonds completed the biggest two-week advance since December 2008 on speculation the nation’s central bank and the Federal Reserve will increase liquidity amid signs of slowing global economic growth.
Ten-year bond yields fell below 1 percent for the first time since Sept. 1 as Japanese stocks slid after a report showed applications for jobless benefits unexpectedly rose in the U.S., Japan’s second-biggest export market. The Fed said on Sept. 21 that it’s willing to ease policy to bolster the U.S. economy. The Bank of Japan won’t rule out any options, including raising bond purchases, board member Ryuzo Miyao said the following day.
“Japan’s situation is no better than the U.S., so if there’s speculation about further easing in the U.S., it’s not a surprise that such expectations are arising here as well,” said Ayako Sera, who helps oversee about $310 billion as a strategist at Sumitomo Trust & Banking Co. in Tokyo. “Should the Bank of Japan ease policy, bonds will gain further.”
The yield on the benchmark 10-year bond dropped 7.5 basis points to 0.995 percent for the week ended Sept. 24 at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent debt due September 2020 rose 0.677 yen to 100.045. Ten-year yields have fallen 15.5 basis points over the past two weeks, the biggest drop for such a period since Dec. 26, 2008.
Ten-year bond futures for December delivery gained 0.76 this week to 142.88 at the Tokyo Stock Exchange. Japan’s financial markets were closed on Sept. 20 and 23 for holidays.
Bond Purchases
Japan’s bonds advanced yesterday as the Nikkei 225 Stock Average slid 1 percent after the U.S. government said initial jobless claims climbed by 12,000 in the week ended Sept. 18. The Federal Open Market Committee said after a meeting on Sept. 21 that it is prepared “to provide additional accommodation if needed to support the economic recovery.”
Demand for bonds was tempered yesterday after Japan’s currency tumbled 1 yen against the dollar, supporting the outlook for exporters’ earnings. Japan intervened in the currency market yesterday, Kyodo News said, citing an unidentified market source, after the nation sold yen on Sept. 15 for the first time since 2004.
“Intervention moves the currency market strongly, so stock and bond markets react quickly to the possibility of intervention,” said Hiroshi Morikawa, a strategist in Tokyo at MU Investments, which manages about $14 billion in assets. “Nobody disputes that Japan’s growth depends on exports, and the currency’s appreciation can wreck the country’s recovery,”
A stronger yen reduces the value of overseas income at Japanese companies when repatriated.
Debt Sales
Japan’s 10-year yields may climb to as high as 1.3 percent on speculation the nation’s ruling party will increase debt sales to help pay for economic-stimulus measures, said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.
The opposition Liberal Democratic Party and the New Komeito have separately proposed the nation sell more than 1 trillion yen ($11.8 billion) of so-called construction bonds for a supplementary budget. The ruling Democratic Party of Japan may be pressured to agree with the plan after it failed to secure an upper-house majority in a July election, Mizuho’s Ueno said.
Japanese Prime Minister Naoto Kan said he will seek to avoid selling government bonds to fund a supplementary budget for the current fiscal year, Kyodo News reported yesterday. He was speaking to reporters in New York, Kyodo said.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net.
