Japan's Bonds Fall, Snap Five-Day Gain, on Stocks, Economic Growth Outlook

Japan’s bonds fell, snapping a five-day gain, as reports that U.S. regulators were split on suing Goldman Sachs Group Inc. boosted Asian stocks.

Ten-year yields also rose from near the lowest level in five weeks as economists said the Bank of Japan will probably raise estimates for growth and inflation in its semiannual outlook report April 30. Securities and Exchange Commission officials voted 3-2 to pursue the case against Goldman, people with knowledge of the matter said, easing concern about increased scrutiny of banks and damping demand for debt.

Japanese bonds “are following overseas market moves, and there may be a sharp correction given the rally yesterday,” said Tetsuya Miura, chief market analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group.

The yield on the 1.4 percent bond due March 2020 rose one basis point to 1.325 percent as of 4:46 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.089 yen to 100.656 yen. Yields dropped to 1.305 percent yesterday, the lowest since March 11.

Bond futures for June delivery declined 0.04 to 139.25 at the Tokyo Stock Exchange.

Ten-year Treasuries fell yesterday, pushing yields up four basis points and widening their yield advantage over similar- dated Japanese debt to 2.48 percentage points.

Stocks Gain

The MSCI Asia Pacific Index of shares climbed 0.4 percent, snapping a two-day drop. Stocks slumped worldwide on April 16, when the SEC’s suit against Goldman Sachs spurred concern fallout from the financial crisis isn’t over.

The decline in bonds was tempered as companies, including life insurers, said they planned to buy more government debt.

Sumitomo Life Insurance Co., the fourth-largest life insurer with about 20 trillion yen ($217 billion) in assets, intends to boost yen-denominated bond holdings this financial year to secure stable returns.

“Based on our goal of asset liability management, yen- denominated bonds continue to be our core investment target,” Iwao Matsumoto, Osaka-based deputy general manager of investment planning, said in a story published yesterday. “The global economic recovery has slowly gathered pace, but it’s still not a strong enough trend and risks continue to exist.”

Withdrawing Stimulus

Sumitomo Life joins Dai-ichi Life Insurance Co., and Meiji Yasuda Life Insurance Co. in betting on the safety of fixed- income investments, amid signs governments may withdraw stimulus measures that have helped lift Japanese exports and the economy.

Japanese bonds have handed investors a return of 0.6 percent this month, heading for the largest gain since a 0.8 percent increase in November, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit.

The Bank of Japan said on April 15 it increased its economic assessment in seven of Japan’s nine areas. All local economies “had picked up, although there remained differences in the pace and extent of the recovery,” the bank said.

“The contents of the BOJ’s semi-annual outlook report will likely start to be reflected” in the bond market, Chotaro Morita, head of bond strategy at Barclays Capital Japan Ltd., wrote in a report.

Japan’s economy has been picking up, BOJ Governor Masaaki Shirakawa told lawmakers today in Tokyo. He said earlier this month that beating deflation remains a “critical challenge” and pledged to keep an “accommodative” policy. Shirakawa also said the decline in consumer prices will keep moderating as the economy improves.

Traders see consumer prices dropping an average 0.9 percent over the next five years, as measured by the difference in yield between inflation-linked bonds and conventional debt.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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