Oct. 11 (Bloomberg) -- Japan's government bonds may fall on expectations a report today will show machinery orders rose for a second month in five in August.

Ten-year government bonds may add to a fifth straight week of losses on speculation signs of economic growth will encourage the Bank of Japan to reduce the level of money it pumps into the banking system as soon as next year. Machinery orders probably rose in August after falling in July, according to a Bloomberg News survey of economists.

``Bonds will probably stay weak as machine orders will show the economy is improving,'' said Keisaku Ujihara, a fund manager at Mitsubishi UFJ Asset Management Co. in Tokyo, part of Mitsubishi UFJ Financial Group Inc., the world's biggest lender by assets.

The yield on the 1.5 percent bond due in September fell half a basis point to 1.51 percent as of 12:40 p.m. at Japan Bond Trading Co., the nation's largest debt broker. A basis point is 0.01 percentage point. Its price rose 0.043 yen, or 43 yen per 100,000 yen face amount, to 99.913.

Ten-year bond futures for December delivery fell 0.08 to 137.27 on the Tokyo Stock Exchange.

Private machinery orders, excluding shipping and utilities, probably rose 2.5 percent in August, after falling 4.3 percent the previous month, according to the median forecast of 26 economists in the survey. The report is due at 2 p.m. in Tokyo.

Economic Recovery

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

Today's report will add to signs that the Japanese economy, the world's second-largest, is improving.

Japan's index of leading economic indicators rose to 100 percent in August for the first time in more than five years, the government said on Oct. 7.

Declines in bonds maybe limited as Finance Minister Sadakazu Tanigaki yesterday said he and U.S. Treasury of Secretary John Snow see high oil prices as a risk to global growth.

The cost of Dubai crude, a benchmark for Japanese refiners, has risen about 60 percent this year and reached a record $60.03 a barrel on Sept. 1. Japan, which imports most of its oil, has reduced dependence on the fuel for energy since the 1970s.

Policy Meeting

The central bank is scheduled to start a two-day monetary policy meeting today and Toshihiko Fukui, the bank's governor, will hold a press conference tomorrow.

The BOJ will probably keep pumping cash into the economy and holding interest rates at almost zero at the meeting, according to all 14 economists surveyed by Bloomberg.

``Yields are likely to rise,'' said Tokyo-based Jun Ishii, a chief fixed-income strategist at Mitsubishi UFJ Securities Co., also part of Mitsubishi UFJ Financial Group Inc. ``Discussions about when to change monetary policy will intensify at the meeting.'' Ten-year yields may reach 1.53 percent today, Ishii said.

Policy makers including Fukui have said declining consumer prices that have plagued Japan for more than seven years may cease by the year-end, allowing the central bank to change policy. Deflation increases the value of bonds' fixed payments.

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

Last Updated: October 10, 2005 23:46 EDT