BLBG: Japan 10-Year Yields to Resume Drop to 0.8% in 2011, Morgan Stanley Says
Japan’s 10-year yields may resume declines next year toward levels last seen in 2003 as deflation persists and the central bank is pressed to ease monetary policy further, according to Morgan Stanley MUFG Securities Co.
The government’s aim to boost prices won’t come to fruition next year, putting pressure on the Bank of Japan to do more to spur the economy, said Morgan Stanley MUFG chief economist Takehiro Sato. Yields on benchmark debt, which reached a two- month high of 1.125 percent yesterday, will slide to about 0.8 percent by March 2011, according to the company.
“It’ll be difficult for Japan to overcome deflation,” Sato said. “With political pressures on the Bank of Japan likely to mount, the direction of monetary policy is further easing."
The yield on the 10-year bond sank 5.5 basis points to 1.07 percent today in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. It reached 1.125 percent yesterday, the most since Sept. 14. The yield sank to 0.82 percent on Oct. 6, the lowest since June 2003.
The central bank lowered its benchmark interest rate to "virtually zero" in October and pledged to spend 5 trillion yen ($62 billion) to buy assets including government bonds and corporate debt. The BOJ will likely expand its asset-purchase fund, Sato said.
Japan’s gross domestic product will contract at a 0.8 percent annualized pace in the three months ending in December, according to Sato, from a 3.9 percent rate in the third quarter. The median estimate of 15 analysts surveyed by Bloomberg is for a 0.3 percent expansion. The 10-year yield will end the first quarter of next year at 1.12 percent, a separate survey showed.
U.S. 10-year yields, which today fell three basis points to 2.86 percent, will likely be capped at about 3 percent, Sato said. The Federal Reserve will likely start a third round of asset purchases intended to keep borrowing costs low, Sato said.
‘‘The U.S. won’t achieve reflation,” he said. “The pace of improvement in employment is slow. The jobless rate will likely stay above 9 percent.”
To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at Rswift5@bloomberg.net.
