Japan's Five-Year Notes Fall as Stock Gains Curb Demand for Safer Assets

Japan’s five-year notes fell for the first time in a week as a rally in stocks around the world damped demand for the relative safety of government debt.

Five-year yields climbed from near a two-week low after a U.S. report showed orders for capital equipment rose more than economists forecast, adding to signs the world’s largest economy is recovering. Bond losses were limited after the Finance Ministry said Japanese exports grew at the slowest pace this year as a stronger yen threatened to undermine the economy.

“Japan’s bond market is being damped as stocks are gaining,” said Naomi Hasegawa, a senior debt strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Investors are refraining from moving before the end of the fiscal first half because doing so alters their earnings results that are being calculated.” Japan’s first half ends Sept. 30.

The yield on the five-year note rose one basis point to 0.29 percent as of 3:18 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 0.4 percent security due September 2015 fell 0.049 yen to 100.539 yen.

The 10-year yield was unchanged at 0.995 percent and has added two basis points since Aug. 31, set for the first monthly increase in six. Ten-year bond futures for December delivery dropped 0.05 to 142.83 at the close of the Tokyo Stock Exchange.

The Nikkei 225 Stock Average rose 1.4 percent. The Standard & Poor’s 500 Index climbed 2.1 percent on Sept. 24 after the U.S. Commerce Department said bookings for capital equipment climbed 4.1 percent in August, surpassing the 3 percent growth forecast in a Bloomberg News survey.

Exports Slow

The decline in bonds was tempered as Japan’s export figures fueled speculation the central bank will buy more debt to help keep borrowing costs low.

The Bank of Japan is “ready to implement appropriate action in a timely manner if judged necessary,” Governor Masaaki Shirakawa said yesterday at a forum on monetary economics held in Kobe, western Japan. “We have to pay more attention than before to downside risk to the economy.”

Exports increased 15.8 percent in August from a year earlier, the Finance Ministry said today in Tokyo, less than the 19 percent gain predicted by economist surveyed by Bloomberg.

“Speculation about the Bank of Japan’s additional easing is supporting the bond market,” said Masaru Hamasaki, who helps oversee about $17 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “If the central bank aggressively buys bonds, their yields will fall initially.”

Prime Minister Naoto Kan’s administration will aim to avoid increasing bond issuance as it considers an economic stimulus package, a government official said. The package may total as much as 4.6 trillion yen ($55 billion), the official said.

The Finance Ministry will sell 2.6 trillion yen in two-year notes tomorrow. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds in case prices decline before they can pass on the new securities to investors.

To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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