Japanese Bonds Rise for Third Day as Yen Strengthens, Confidence Declines
Japan’s 10-year bonds rose for a third day as the yen’s advance to a 15-year high against the dollar threatened the outlook for exporters’ earnings.
Benchmark bonds extended this week’s gains after the Cabinet Office said consumer confidence declined for a second month in August, boosting demand for the relative safety of government debt. The yen has gained at least 5 percent against all of the 16 most-active counterparts this year, making Japanese exports less competitive in global markets.
“The yen’s appreciation is significant,” said Akira Terabayashi, a researcher in Tokyo at Norinchukin Research Institute Co., the central bank for Japan’s agricultural, forestry and fishery cooperatives. “Ten-year yields are likely to remain in the 1.10 percent range. But it’ll be a different story if the yen continues to strengthen.”
The yield on the 10-year bond fell one basis point to 1.12 percent as of 4:48 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent security due September 2020 rose 0.089 yen to 98.921. The yield has dropped 2.5 basis points this week.
Ten-year bond futures for December delivery were unchanged at 141.62 at the 3 p.m. close of the Tokyo Stock Exchange.
The yen traded at 83.65 per dollar after rising to as high as 83.35 yesterday, the strongest level since May 1995. Japan’s currency has climbed 11.2 percent against the dollar this year, and surged 26 percent against the euro.
Confidence Declines
A gauge of consumer confidence fell to 42.5 in August from 43.4 the previous month, the Cabinet Office said today in Tokyo. Household sentiment slipped to 42.4 from 43.3, the report showed.
The same percentage of big manufacturers are pessimistic about the fourth quarter as those who are optimistic, resulting in an index reading of zero, according to a separate report from the Cabinet Office and Ministry of Finance. For the three months to September the gauge rose to 13.3.
“The current state of Japan’s economy isn’t bad though the yen’s strength is a cause of concern,” said Masaru Hamasaki, who helps oversees about $15 billion in assets as chief strategist at Toyota Asset Management Co. in Tokyo.
The gain in bonds was tempered on speculation some investors sold the securities to prepare for a 2.4 trillion yen ($29 billion) auction of five-year notes tomorrow.
The previous sale of five-year debt on Aug. 11 drew bids for 4.68 times the amount on offer, compared with a so-called bid-to-cover ratio of 3.37 in July. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds before an auction in case prices decline before they can pass on the new securities to investors.
The government is closely watching China’s purchases of Japanese bonds and will seek to maintain close contact with Chinese authorities on the issue, Vice Finance Minister Naoki Minezaki told lawmakers in Tokyo today.
China bought more Japanese bonds than it sold for a seventh straight month in July, poised for a record annual increase, Japan’s government reported yesterday.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
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