Japanese bonds fell the most in five weeks as a weaker yen boosted stocks and optimism the nuclear threat is being stabilized reduced demand for the safety of government debt. Longer-maturity bonds led losses on concern the government will need to issue more debt to pay for reconstruction as the nation rebuilds after its worst earthquake. Economic and Fiscal Policy Minister Kaoru Yosano said bond sales, cuts to other spending and tax measures may pay for reconstruction, adding it would be undesirable to tap public pension funds. “Stocks and the yen are stabilizing and coming back to good levels, causing bonds to be sold,” said Akio Kato, team leader for Japanese debt in Tokyo at Kokusai Asset Management Co., which runs the $33 billion Global Sovereign Open fund. “Reconstruction efforts will increase the nation’s debt burden, which is negative for super long-term bonds.” The 10-year yield rose 3.5 basis points to 1.245 percent as of 3:44 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security due March 2021 dropped 0.314 yen to 100.488 yen. The drop in yield was the most since Feb. 16 Ten-year bond futures for June delivery fell 0.34 to 139.40 at the afternoon close on the Tokyo Stock Exchange. Twenty-year yields gained three basis points to 2.045 percent. The yen has weakened to 80.90 per dollar after surging to a post-World War II high of 76.25 on March 17. The Nikkei 225 Stock average advanced 4.4 percent today after Japanese markets were shut yesterday for a public holiday. ‘Signs of Stabilization’ “Markets including the foreign-exchange sector are showing signs of stabilization, and that’s against Japan’s bonds,” Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co., wrote in a research note today. “Losses in bond futures may widen, depending on gains in stocks.” The Group of Seven intervened to weaken the yen on March 18, saying in a statement that member nations would “provide any cooperation” with Japan. Barclays Capital and RBS Securities Inc. estimate the G-7 sold about 2 trillion yen ($24.7 billion). A stronger currency hurts the competitiveness of Japanese exporters. Japan has been battling for 12 days to prevent a meltdown at the Fukushima Dai-Ichi nuclear plant, which was damaged by the March 11 quake and tsunami. Tokyo Electric Power Co. expects to restore power to parts of the building housing the most damaged reactors, 1 through 4, by the end of today, Teruaki Kobayashi said at a news conference in Tokyo. Extra Funds The Bank of Japan added 2 trillion yen to the financial market today in a one-day operation, bringing the total of emergency funds pumped into the system to 40 trillion yen since March 14. The BOJ increased liquidity to ensure the banks have sufficient funds after the March 11 earthquake set off a global rout in stock markets. Finance Minister Yoshihiko Noda said today the government is undecided on the size of the rebuilding package and will need to assess the damage first. Japan’s debt is set to reach 210 percent of gross domestic product in 2012, the highest among countries tracked by the Organization for Economic Cooperation and Development. The Finance Ministry will sell 2.6 trillion yen of two-year notes on March 24. The previous two-year sale on Feb. 24 drew bids for 3.7 times the amount on offer, compared with a bid-to- cover ratio of 5.33 at the January sale. 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.

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