Japanese Bonds Rise as Yen Reaches Post-War High, Damping Recovery Outlook
March 16 (Bloomberg) -- Robert Sinche, global head of currency strategy at RBS Securities Inc., discusses the impact of Japan's natural disasters and nuclear plant crisis on global currency markets, and the outlook for the yen. The yen reached its strongest level since 1995 versus the dollar as risk of radiation leaks from crippled nuclear plants in Japan added to speculation insurers and investors will redeem overseas assets to pay for damages. Sinche speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Japanese bonds rose, snapping a two-day drop, on speculation the yen’s advance to a post-World War II high will hamper the nation’s economic recovery from its biggest ever earthquake.
Yields on 10-year debt fell toward a two-month low as stocks slumped around the world, boosting demand for the relative safety of government securities. The extra yield investors demand to hold 40-year bonds instead of 10-year debt widened to the most in three years on speculation the government will increase issuance of longer-term debt to finance rebuilding.
“Buying prevails in the bond market on demand for safe assets on the back of the yen’s appreciation and the slump in stocks,” said Akito Fukunaga, chief rates strategist at the brokerage unit of Royal Bank of Scotland Plc in Tokyo. “It’s necessary to evaluate a balance between selling spurred by concern about Japan’s worsening fiscal health, and buying caused by risk aversion and a possible economic slowdown.”
The 10-year yield fell two basis points to 1.20 percent as of 3:45 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security maturing in March 2021 added 0.18 yen to 100.892 yen. The yield dropped to 1.145 percent on March 15, the lowest level since Jan. 5.
Ten-year bond futures for June delivery were little changed at 139.70 at the 3 p.m. close of the Tokyo Stock Exchange after earlier advancing as much as 0.48.
Yen Surge
The yen rose as high as 76.36 per dollar today, surpassing its post-World War II peak of 79.75 reached in April 1995. A stronger yen makes Japanese exports more expensive overseas and reduces the value of overseas earnings at the nation’s companies when repatriated.
The Japanese currency’s postwar high “reinforces speculation the yen’s appreciation and a drop in stocks will continue,” said Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co. Ten-year bond yields will decline to 0.9 percent between May and July, he said. Tokai Tokyo and RBS’s brokerage unit are among the 24 primary dealers obliged to bid at government debt sales.
The Nikkei 225 (NKY) Stock Average slid 1.4 percent after the Standard & Poor’s 500 Index sank 2 percent in New York yesterday.
More than 300 workers are racing to prevent a meltdown and spread of radiation at the crippled Fukushima Dai-Ichi power station today, an increase from a core group of 50 engineers yesterday, Tokyo Electric Power Co. said. Workers plan to connect a power line to start damaged cooling systems later today and intend to spray water on a damaged reactor from a cannon used by the police for riot control, Tepco spokesman Kaoru Yoshida said.
‘Natural Response’
Concern the threat of a nuclear accident will persist prompted financial companies to increase deposits at the central bank as the Bank of Japan provided additional liquidity. The outstanding current-account deposits held by private financial institutions at the BOJ climbed to 27.2 trillion yen ($343 billion) yesterday, the highest level since April 2006.
The increase in the deposits “is a natural response for financial companies to the crisis,” said Hiroshi Seki, a market economist at Tokyo Tanshi Co.
The BOJ pumped 6 trillion yen in the financial system today, bringing the total amount of emergency one-day operations for this week to 34 trillion yen.
The difference in yield between 40-year bonds and 10-year government debt expanded to 1.17 percentage points today, the widest since April 2008.
Group of Seven nations’ finance chiefs will discuss Japan’s crisis on a conference call at 7 a.m. Tokyo time tomorrow, Japanese Finance Minister Yoshihiko Noda said today. The G-7 is made up of the U.S., Germany, France, Canada, Italy, the U.K. and Japan.
French Finance Minister Christine Lagarde said yesterday she wanted to convene G-7 talks on the financial response to Japan’s earthquake.
“I’ve asked for a G-7 meeting at the level of finance ministers and central bankers to see how we can purchase their bonds and how to respond on the financial level,” she told reporters in Paris.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
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