Japanese Bonds Rise for a Second Day on Fed Easing Signals, Yen's Advance
Japanese bonds advanced for a second day as the Federal Reserve’s willingness to ease monetary policy further spurred speculation the yen will strengthen and hurt domestic company profits.
Benchmark 10-year yields declined toward a three-week low after a former top currency official in Japan said the nation’s first intervention in six years will fail to stop the yen’s climb to a record. Bonds also gained on concern overseas trade will suffer after a ship collision in disputed waters caused a rift in relations with China, Japan’s biggest export market.
“If the Fed eases policy, differences in the degree of monetary easing between the U.S. and Japan will spur further yen appreciation,” said Takeshi Minami, chief economist at Tokyo- based Norinchukin Research Institute Co. “The negative influence of a stronger yen on exporters’ earnings will drive down bond yields.”
The yield on the benchmark 10-year bond fell two basis points to 1.025 percent at 3:07 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent debt due September 2020 rose 0.18 yen to 99.773. Yields touched 1.0 percent, the lowest since Sept. 1.
Ten-year bond futures for December delivery gained 0.27 to 142.65 at the Tokyo Stock Exchange.
The 10-year U.S. Treasury yield slid 13 basis points yesterday in New York after the Federal Open Market Committee said it’s prepared “to provide additional accommodation if needed to support economic recovery.” Yields on two-year notes fell to an all-time low.
‘Matter of Time’
The yen’s gain to a record is “just a matter of time” and the latest intervention won’t change the trend, Eisuke Sakakibara, formerly Japan’s top currency official, said in an interview yesterday. The yen rose to 82.88 per dollar on Sept. 15, the strongest since May 1995, before Japan unilaterally sold the currency. It rose 0.2 percent today to 84.93.
Bank of Japan board member Ryuzo Miyao said in a speech today that Japan is “entering a situation where we need to pay more attention to downside risks.” Governor Masaaki Shirakawa said the central bank needs to monitor risks to Japan’s economy, exports, and corporate profitability, the Yomiuri newspaper reported, citing an interview.
“The bond market will remain robust, considering the favorable environment,” said Kazuhiko Sano, Tokyo-based chief strategist at Tokai Tokyo Securities Co. “The 1 percent level for 10-year yields is a resistance line.”
Chinese Premier Wen Jiabao won’t meet Japanese Prime Minister Naoto Kan during the United Nations summit in New York this week, the China Daily reported, citing Foreign Ministry spokeswoman Jiang Yu. Japanese prosecutors have extended the detention of a Chinese fishing boat captain until Sept. 29 over a collision with two Coast Guard vessels in disputed waters in the East China Sea.
“If relations with China worsen, it will inflict sizable damage on Japan’s economy,” said Norinchukin’s Minami. “That misfortune would be a positive factor for Japan’s bond market.”
China was Japan’s biggest export market by the value of products shipped during the first half of 2010, according to a Ministry of Finance report.
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