Japan's Bonds Fall on Speculation BOJ to Delay Easing, Political Concern

Japan’s government bonds fell the most in a week on speculation the departure to the U.S. of central bank chairman Masaaki Shirakawa will delay any plan to announce additional measures to keep borrowing costs low.

Ten-year futures dropped for the first time in three days as stocks rallied, damping demand for the relative safety of government debt. Bonds also declined as political divisions within the ruling Democratic Party of Japan fueled concern its fiscal reform agenda will be watered down.

“There is an emerging view that the BOJ can’t decide on much-awaited monetary easing while Shirakawa is away from Japan,” said Koji Ochiai , chief market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second- largest bank. “This spurred some selling of bonds.”

The yield on the benchmark 10-year bond rose 2.5 basis points to 0.935 percent as of 3:45 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent security due June 2020 dropped 0.229 yen to 101.481 yen. The gain in yield was the most since Aug. 18.

Ten-year bond futures for September delivery slipped 0.24 to 142.82 at the afternoon close on the Tokyo Stock Exchange. The Nikkei 225 Stock Average gained 0.7 percent.

The Bank of Japan said yesterday Governor Shirakawa will travel today to the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, damping expectations he will oversee an emergency meeting to implement new monetary-easing measures.

Policy Board

The BOJ’s policy board may meet before their next session scheduled for Sept. 6-7, depending on market conditions, the Nikkei newspaper reported yesterday. The central bank may extend to 30 trillion yen ($354 billion) from 20 trillion yen, a program that provides funding to lenders at 0.1 percent, the newspaper said, without citing anyone.

Bonds also fell after Ichiro Ozawa, the former second- ranked official in the DPJ said today he will challenge Prime Minister Naoto Kan at a party leadership contest next month.

Ozawa, who quit his post as DPJ Secretary-General in June amid campaign finance scandals, told reporters he informed former Prime Minister Yukio Hatoyama of his intention to run for the party’s leadership. Hatoyama, who also resigned his office in June over a dispute involving U.S. troops in Japan, said he will back Ozawa.

‘Big Spending’

“Ozawa is known for big spending policies, and if he won the race, he may push for such measures,” said Hideyuki Suzuki, Tokyo-based general manager of investment market research department at SBI Securities Co., a unit of financier SBI Holdings Inc.

Almost 61 percent of voters support Kan’s re-election while 79 percent disapprove of Ozawa gaining an important position in the DPJ, according to a survey by Nippon Television Network on Aug. 22.

The decline in bonds was tempered after an auction of two- year notes resulted in a higher price than traders forecast.

The 2.6 trillion yen ($30.7 billion) sales drew a lowest- accepted price of 99.955, exceeding the 99.95 estimated by traders surveyed by Bloomberg.

“The auction finished smoothly,” said Naomi Hasegawa, a senior debt strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “With persisting concerns over an economic slowdown globally and the stronger yen as well as the dimmed outlook for stocks, the flight from risk assets to quality is continuing.”

The Nikkei 225 Stock Average has lost more than 20 percent from a 52-week high on April 5 as the yen’s appreciation threatened exporters’ earnings. The Japanese currency has strengthened against all of its 16 major counterparts this year.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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