Japan’s longer-maturity bonds completed a weekly loss on speculation increasing supply will damp demand at the government attempts to sell 2.9 trillion yen ($30.8 billion) of debt next week. Twenty-year securities fell for a third week after the Bank of Japan yesterday raised its view of the economy for the first time in almost three years on signs the worst of the economic contraction may be over. The central bank decided to keep monthly bond purchases unchanged and voted unanimously to hold the target interest rate at 0.1 percent. “We will probably see supply-and-demand conditions for bonds worsen in the next two weeks because of the heavy auctions,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., a unit of Switzerland’s biggest bank. The yield on the 2.1 percent bond due March 2029 rose two basis points this week to 2.11 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.28 yen to 99.86 yen. The yield touched 2.13 percent yesterday, the highest since April 22. The yield on the benchmark 10-year bond increased half a basis point this week to 1.43 percent. Ten-year bond futures for June delivery declined 0.15 this week to 136.89 at the Tokyo Stock Exchange. Japan’s Ministry of Finance will sell 900 billion yen ($9.6 billion) of 20-year securities on May 26 and 2 trillion yen in two-year notes on May 28. The ministry on April 27 said it will boost bond sales to 130.2 trillion yen this fiscal year from the originally planned 113.3 trillion yen. Foreign Collateral Ten-year yields rose yesterday after the central bank also said it would accept foreign currency-denominated sovereign debt as collateral to make it easier for banks to obtain cash. The first upgrade in the economic assessment since July 2006 indicates Governor Masaaki Shirakawa and his board may be reluctant to further expand a program of buying corporate and government debt, even as deflation looms. “Economic conditions have been deteriorating, but exports and production are beginning to level out,” the bank said yesterday in a statement in Tokyo. It has previous said the economy had “deteriorated significantly.” Losses in Japanese bonds were limited on speculation the BOJ’s decision to keep borrowing costs unchanged would encourage investors to buy government debt. “Given the likelihood the BOJ will stand pat on rates until the end of 2010, it would not be a surprise if investors expand buying of bonds to include longer-dated debt,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Ltd. Moody’s Rating Moody’s Investors Service said on May 19 it’s unlikely to cut Japan’s debt rating over the next year because investors are willing to buy bonds that will fund stimulus measures and the economy is likely to recover. Moody’s brought Japan’s local and foreign-currency debt ratings to the same level, Aa2, this week to reflect the equal repayment risk for each. It raised the local-currency debt rating from Aa3 and cut the foreign-currency assessment from Aaa. Japan’s debt burden will probably increase to 197 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.

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