Japan’s 10-year bond yields were at the lowest level in three weeks after Economy and Fiscal Policy Minister Kaoru Yosano said taxes must be used to help fund earthquake reconstruction. The comment helped temper speculation that damage estimated at as much as 25 trillion yen ($302 billion) will exacerbate the nation’s debt burden that’s near 200 percent of gross domestic product. Bonds were also supported after Dai-ichi Life Insurance Co., Japan’s second-biggest life insurer, said it plans to boost its holdings of Japanese government bonds this fiscal year. “Talks on tax increases may ease concern over the fiscal deficit,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co., a unit of Japan’s biggest lender for farmers and fishermen in Tokyo. “That’s positive for bonds.” The benchmark 10-year yield slid half a basis point to 1.225 percent as of 3:12 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security due March 2021 added 0.045 to 100.662 yen. The yield was the lowest since March 29. Ten-year bond futures for June delivery declined 0.04 to 139.58 at the 3 p.m. close of the Tokyo Stock Exchange. Twenty-year yields fell half a basis point to 2 percent, extending their decline to a seventh day. A basis point is 0.01 percentage point. “Of course our borrowing must be backed by taxes,” Yosano, 72, said in an interview in Tokyo yesterday. While a sales tax increase “is one possibility we could explain to people, the government hasn’t made any progress on discussions.” Sales Tax Chief Cabinet Secretary Yukio Edano indicated this week that raising the nation’s 5 percent sales tax could be an option ruling party members will consider. Sixty-nine percent of people said they would support an increase in levies to fund rebuilding, according to a Nikkei newspaper survey released this week. Dai-ichi Life, with about 30 trillion yen in assets, plans to mainly invest in Japanese government bonds with maturities of at least 20 years in the year through March 2012, said Takashi Iida, a manager in the investment planning division. He declined to give figures, saying the information is private. Net Buyers Insurance companies bought a net 1.08 trillion yen in Japanese bonds including non-government debt last month, the most this year, data compiled by the Japan Securities Dealers Association showed yesterday. Insurers were the country’s second-biggest buyers of debt after city banks in the year through March 31. The Ministry of Finance sold 1.1 trillion yen in 20-year bonds today. The lowest price at the auction of the securities was 99.50 yen, matching the median forecast of 13 traders surveyed by Bloomberg News. The sale drew bids valued at 2.92 times the amount on offer, compared with a so-called bid-to- cover ratio of 4.13 at the March 16 auction. “The auction results were not that bad,” said Koji Ochiai, chief market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest publicly traded lender. “There’s demand from investors at the beginning of the fiscal year.” The yield spread between 20-year Japanese government debt and five-year notes narrowed to 1.50 percentage points, the least since March 11. To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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