Oct. 4 (Bloomberg) -- Japan's 10-year bonds fell, pushing yields to the highest in almost seven months, as stock gains deterred investors from buying fixed-income securities.

Bonds also fell on speculation investors will sell holdings to raise money for a government sale of 10-year government debt today. Japanese stocks rose, led by exporters such as Canon Inc. and Honda Motor Co., on speculation demand will grow in the U.S., the biggest market for the country's shipments abroad.

``It's hard to buy bonds; Stocks are rising and we're waiting for the 10-year auction,'' said Keisaku Ujihara, a fund manager in Tokyo at Mitsubishi UFJ Asset Management Co., part of Mitsubishi UFJ Financial Group Inc., the world's biggest lender by assets. ``Strong U.S. growth is a big help for Japan's economy.''

The yield on the key 1.4 percent bond due September 2015 rose 2.5 basis points, or 0.025 percentage point, to 1.52 percent, the highest since March 10, as of 12:42 p.m. at Japan Bond Trading Co., the nation's largest debt broker.

The price fell 0.214, or 214 yen per 100,000 yen face amount, to 99.962. Ten-year bond futures for December delivery fell 0.28 to 137.21 in Tokyo. The Nikkei 225 Stock Average rose 1 percent.

Ujihara said he is keeping the average duration of his debt holdings shorter than his benchmark, the Nomura Bond Performance Index. Duration measures sensitivity to changes in interest rates, and the lower the duration the less a bond loses when yields rise.

Declines in bonds may be limited on speculation 10-year yields near the highest in almost seven months will attract investors as falling consumer prices persist.

Finance Minister

Finance Minister Sadakazu Tanigaki said today at a regular press conference in Tokyo that mild deflation continues to grip Japan, and the country needs to make efforts to overcome it.

``There should be demand for bonds with yields at around 1.5 percent,'' said Yasunori Kuroda, who helps manage fixed-income assets in Tokyo at Sompo Japan Insurance Inc., the nation's third- largest casualty insurer. The company holds the equivalent of about $44 billion in assets.

Bonds may also be poised for a rebound, based on the relative strength index, a technical indicator that some investors use to gauge momentum. The RSI level for the past 14 trading days on 10- year yields rose to 72 yesterday from 59 a week ago. A level 70 implies selling may have run its course.

To contact the reporter on this story: Issei Morita in Tokyo at imorita@bloomberg.net.

Last Updated: October 3, 2005 23:46 EDT