Japanese Bond Slide, Yields Rise Most in 19 Months, on Policy Speculation
Japanese bonds fell, pushing 10-year yields up by the most in 19 months, as stocks rallied on speculation the government will take steps to bolster the economy and curb the yen’s appreciation.
Benchmark 10-year yields climbed to 1 percent for the first time in two weeks after Chief Cabinet Secretary Yoshito Sengoku said Prime Minister Naoto Kan will speak today about his policies on the economy and currency. Kan’s administration is compiling an aid package to bolster growth as prices continue to fall and the yen’s 10 percent gain against the dollar this year hurts exports.
“The government hasn’t brought out any detailed plan to halt the yen’s appreciation yet, and it would be meaningful if the government makes it clear how it will react,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $65 billion. “Investors have been waiting for a catalyst to sell because the recent gains in bonds were excessive.”
The yield on the benchmark 10-year bond jumped 6.5 basis points to 1 percent as of 3:48 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent security due June 2020 fell 0.589 yen to 100.892 yen. The increase in yield was the most since Jan. 8, 2009.
Ten-year bond futures for September delivery dropped 0.27 to 142.55 at the 3 p.m. close of the Tokyo Stock Exchange. The Nikkei 225 Stock Average advanced 1 percent.
Ten-year bonds posted their first weekly loss since July 9, with the yield climbing 7.5 basis points in the past five days.
Kan’s Meeting
Kan will meet Japanese business executives today to discuss measures to stem the yen’s rally to a 15-year-high and fight deflation, Sengoku said in Tokyo. His discussions with small and medium-sized businesses will focus on “how they’ve been affected by the strong yen,” Sengoku said.
The yen has strengthened all of its 16 major counterparts this year and reached 83.60 per dollar on Aug. 24, the strongest since June 1995. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated.
Bonds also fell for a second day after Ichiro Ozawa said yesterday he will challenge Kan for the leadership of the ruling Democratic Party of Japan, fueling speculation political divisions will deter the Bank of Japan from further easing monetary policy.
Ozawa, who quit his post as DPJ Secretary-General in June amid campaign finance scandals, announced his intention to compete against Kan at a Sept. 14 contest.
‘Can’t Move Freely’
“As it’s unclear whether the BOJ should work with Kan or his successor, we can hardly expect action from the central bank,” said Ayako Sera, a strategist in Tokyo at Sumitomo Trust & Banking Co., which manages about $310 billion. “I don’t think they want to receive a request from the man who may not be responsible soon. The BOJ can’t move freely until a new government is established.”
The decline in bonds was tempered by a government report that showed consumer prices declined for a 17th month in July. Deflation, or a drop in general prices, increases the value of the fixed payments from bonds.
Consumer prices excluding fresh food fell 1.1 percent from a year earlier, the statistics bureau said. Household spending rose 1.1 percent, lower than economists’ estimates for a 1.5 percent gain.
“The darkening outlook for the global economy is putting off a rebound in consumer prices,” said Hiroshi Morikawa, a strategist in Tokyo at MU Investments, which manages about $14 billion in assets.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
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