Japan's Bonds Complete Four-Month Gain on Rising Jobless Rate, Deflation
Japanese bonds gained for a fourth month as government reports showing lingering deflation and a rising jobless rate increased demand for the relative safety of government debt.
Benchmark futures climbed toward a seven-year high as government reports showed consumer prices fell for a 16th month in June and the jobless rate unexpectedly increased. A group of ruling-party lawmakers said yesterday they will press the prime minister to do more to tackle deflation, which enhances the purchasing power of the fixed payments from debt.
“I don’t think there will be a major change in Japan’s deflationary environment,” said Hisakazu Amano, who helps oversee about $18 billion at T&D Asset Management Co. in Tokyo. “Yields may rebound temporarily, but there seems to be no reason for yields to enter an upward trend.”
The yield on the benchmark 10-year bond fell 1.5 basis points this month to 1.07 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent security due June 2020 closed yesterday at 100.267 yen.
Ten-year bond futures for September delivery gained 0.18 this month to 141.84 on the Tokyo Stock Exchange after climbing to 142.08 on July 22, the highest since August 2003.
Bonds rallied yesterday after the statistics bureau said Japan’s unemployment rate climbed to a seven-month high of 5.3 percent in June from 5.2 percent the previous month. Factory output slid 1.5 percent from May. Consumer prices excluding fresh food declined 1 percent from a year earlier.
‘Lack of Investment’
“The biggest reason for deflation is a lack of investment opportunities for businesses,” T&D’s Amano said. “The situation won’t improve anytime soon regardless of what measures the central bank or government take.”
A group of Democratic Party of Japan legislators led by Jin Matsubara will present their demands to Finance Minister Yoshihiko Noda, they said at a meeting in Tokyo. Their proposals include pushing the Bank of Japan to buy long-term government bonds and follow a government policy of setting an inflation target of 2 percent to 3 percent.
Bonds also advanced as the Federal Reserve’s Beige Book business survey said growth was slowing in some areas of the country. The U.S. is closer to “Japanese-style outcome,” Federal Reserve Bank of St. Louis President James Bullard said in a research paper released July 29.
“The decline in Japanese bond yields will continue because of concern about a slowdown in the U.S. economy,” said Kazuya Ito, a fund manager in Tokyo at Daiwa SB Investments Ltd., a unit of Japan’s second-largest brokerage.
The U.S. was Japan’s second-biggest export market after China by the value of products shipped during the first half of 2010, according to the Ministry of Finance.
Ten-year yields may fall as low as 0.9 percent in the three months to Oct. 31, Mizuho Securities Co. forecast in a report yesterday. Investors would get a 1.7 percent return should yields drop to that level at the end of October, according to Bloomberg calculations.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
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