Japan Bonds Fall First Time This Week on Recovery Signs, Gain in Equities

Japanese bonds declined for the first time in five days as easing concern that the U.S. recovery will stall curbed demand for the safety of government debt.

Benchmark 10-year yields pared the biggest weekly drop in 10 months after data showed the number of Americans seeking jobless benefits unexpectedly fell. Bonds also slid as the Nikkei 225 Stock Average climbed to a six-week high. Japan’s financial markets will be closed on Sept. 20 for a national holiday.

“Gains in domestic stocks are nudging bonds lower,” said Koji Ochiai, chief market economist at Mizuho Investors Securities Co. in Tokyo. “Investors prefer to stay on the sidelines before the weekend.”

The yield on the benchmark 10-year bond advanced three basis points to 1.07 percent as of 3:13 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent bond due in September 2020 sank 0.269 yen to 99.368 yen.

The yield has lost eight basis points since Sept. 10, the biggest weekly decline since the period ended Nov. 13.

Ten-year bond futures for December delivery fell 0.14 to 142.12 at the Tokyo Stock Exchange. The Nikkei 225 jumped 1.2 percent to the highest close since Aug. 6.

Initial joblessness claims in the U.S. dropped by 3,000 last week, the Labor Department reported yesterday. Economists had projected an increase.

Prime Minister Naoto Kan retained his job this week after defeating a leadership challenge by Ichiro Ozawa, a former secretary general of the ruling Democratic Party of Japan. Ozawa, who heads the DPJ’s largest faction, has said the government may have to issue more bonds for spending measures to boost the economy.

Katsuya Okada, a former foreign minister, today was named the DPJ’s new secretary general, the No. 2 spot in the party.

Okada Appointment

“Okada is distant from Ozawa, and his appointment signifies Ozawa’s dissipating influence over the ruling party,” Shinji Nomura, chief debt strategist at Tokyo-based Nikko Cordial Securities Inc., wrote in a report today. “That has reduced concern even further that bonds will fall.”

Kan has decided to compile a supplementary budget for the current fiscal year, Kyodo News reported today. The government won’t issue additional bonds, it said.

“The size of a supplementary budget won’t be that big, so its effect over the bond market will be very limited,” said Masaru Hamasaki, who helps oversees about $17 billion as chief strategist at Tokyo-based Toyota Asset Management Co.

The Tokyo Stock Exchange is considering extending trading hours for Japanese government-bond futures next year, spokesman Naoya Takahashi said today, confirming a Nikkei newspaper report. The Nikkei said futures will start trading 15 minutes earlier next fall than the current 9 a.m. open on the bourse.

To contact the reporters on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Yumi Ikeda in Tokyo at yikeda4@bloomberg.net.

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