Japanese Bonds Advance for Second Day on Strengthening Yen, Stock Losses
Japanese government bonds advanced for a second day as stocks slumped on concern a strengthening yen will jeopardize the nation’s export-led economic recovery.
Five-year notes led the gain after the yen rose to a 15- year high versus the dollar, spurring demand for the refuge of government debt. Five-year yields fell from the highest level in eight weeks on speculation the Bank of Japan will introduce additional measures to keep interest rates low after yesterday pledging to take “timely and appropriate” action if needed.
“As the U.S. and Europe want to keep their currencies weak, it’s pretty hard for Japan to ensure recovery while counting on overseas demand,” said Akio Kato, Tokyo-based team leader for Japanese debt at Kokusai Asset Management Co., which runs the $38.5 billion Global Sovereign Open fund. “Things are turning positive for JGBs.”
The yield on the five-year note fell four basis points to 0.29 percent as of 3:15 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 0.3 percent security due June 2015 rose 0.189 yen to 100.047 yen. The yield climbed to 0.37 percent yesterday, the highest since July 14.
Ten-year yields declined half a basis point to 1.13 percent. They slid to 0.895 percent on Aug. 25, the lowest since 2003. Ten-year bond futures for September delivery gained 0.23 to 141.78 as of the afternoon close at the Tokyo Stock Exchange.
The Nikkei 225 Stock Average dropped 2.2 percent.
Stronger Yen
The yen climbed as high as 83.35 per dollar today, the strongest since May 1995. The currency has strengthened 16 percent this year, the biggest gain among the 10 major developed-world currencies, Bloomberg Correlation-Weighted Currency Indexes show. The yen tends to appreciate in times financial turmoil as Japan’s trade surplus means it doesn’t depend on foreign capital.
“The yen is vulnerable to appreciation pressures, while stocks are likely to struggle,” said Hirokata Kusaba, a senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest bank. “The economic recovery is decelerating, leaving some room for monetary easing.”
Bank of Japan Governor Masaaki Shirakawa and his board left a bank-loan facility amount at 30 trillion yen ($359 billion) yesterday after boosting it by 10 trillion yen at an emergency meeting on Aug. 30. They held the benchmark overnight rate at 0.1 percent, where it’s been since December 2008.
30-Year Sale
The gain in bonds was tempered after an auction of 30-year debt today drew less demand than traders forecast. The lowest price at the auction was 99.75 yen, below the 100 level predicted in a Bloomberg survey of 14 traders.
“The market is taking into account further monetary easing, supporting short-term securities,” said Shinji Hiramatsu, who helps oversee the equivalent of $1.7 billion as senior investment manager at Sompo Japan Asset Management Ltd. in Tokyo. “Longer-maturity bonds are not being bought after the weak 30- year sale. High volatility in those securities is probably deterring investors.”
The lowest price at the 600 billion yen sale was 0.41 yen below the average, compared with a difference of 0.36 at the previous sale on July 8. The so-called tail is the difference between the lowest and the average price. The longer the tail, the less bids are clustered around the average price.
Thirty-year yields gained 5.5 basis points to 1.955 percent.
China bought more Japanese bonds than it sold for a seventh straight month, heading for a record annual increase, as a weakening dollar encouraged it to diversify its debt holdings.
China purchased a net 583.1 billion yen of Japanese debt in July, the Ministry of Finance said today in Tokyo. The nation bought a net 735.2 billion yen of Japan’s debt in May, the most in records dating from 2005.
To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.
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