Japanese bonds rose, snapping a two-day decline, on speculation the central bank’s injection of a record amount of emergency funds into the financial system will encourage investors to buy government debt. Ten-year bond futures gained the most in a week after the Bank of Japan said yesterday that lenders’ deposits at the central bank more than doubled to 41.6 trillion yen ($515 billion) since the March 11 earthquake. Bonds also rallied and stocks fell as companies announced production halts and new tremors struck near a damaged nuclear power plant. “The BOJ has injected more than enough funds to stem risk factors in markets,” said Akihiko Inoue, chief market analyst in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank. “Bonds are being bought back as stocks undergo a correction.” The yield on the benchmark 10-year bond fell 3.5 basis points to 1.215 percent as of 3:22 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security maturing in March 2021 gained 0.313 yen to 100.756 yen. Ten year bond futures for June delivery advanced 0.33 to 139.73 at the afternoon close on the Tokyo Stock Exchange, the biggest gain since March 15. The Nikkei 225 (NKY) Stock Average declined 1.7 percent. The government estimates damage from the quake and tsunami may reach 25 trillion yen, more than the 10 trillion yen cost of the Kobe temblor in 1995, the Nikkei newspaper reported today. Engineers at the Fukushima Dai-Ichi nuclear plant are unable to connect power to one of four damaged reactors, marring progress to cool the fuel rods, Hidehiko Nishiyama, a spokesman for the Japan Nuclear and Industrial Safety Agency, told reporters today. ‘Significant Effects’ “We’re going to see significant effects on production capacity,” Bank of Japan board member Ryuzo Miyao said in a speech in Oita, southern Japan. “There’s also a risk that economic activity will be depressed by deteriorating corporate and household sentiment due to uncertainty over the outlook.” The Ministry of Finance will sell 2.6 trillion yen of two- year notes tomorrow. The previous auction of the maturity on Feb. 24 attracted bids for 3.70 times the amount on offer, compared with a ratio of 5.33 at the January sale. “There’s little chance the market will destabilize with tomorrow’s two-year sale because the BOJ has provided ample liquidity since the earthquake,” said Seiji Shiraishi, chief economist at HSBC Securities Inc. in Tokyo. “Bonds are being bought as stocks fall.” To contact the reporter on this story: Yoshiaki Nohara in Osaka at ynohara1@bloomberg.net. To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

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