Japanese Bonds Decline on Prospects Weakening Yen to Aid Exporter Earnings

Japan’s bonds fell, extending a loss this quarter, on speculation the yen’s decline against the dollar and euro will brighten the earnings outlook for exporters and damp demand for the relative safety of debt.

Bond futures slid as stocks rose and a report showed industrial production unexpectedly rose in February. Local bonds also followed a decline in Treasuries before data today forecast to show U.S. companies increased jobs in March, adding to signs the global economic recovery is gathering momentum.

“Economic fundamentals have been solid overseas, and central banks abroad are starting to see an exit in their monetary policies,” said Tatsushi Shikano, a senior economist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s largest bank. “Yields should go up, as the global economy remains resilient.”

The yield on the 1.3 percent bond maturing in March 2021 rose one basis point to 1.24 percent as of 3:12 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.090 yen to 100.531 yen. A basis point is 0.01 percentage point.

Ten-year bond futures for June delivery dropped 0.21 to 139.57 as of the afternoon close at the Tokyo Stock Exchange. The Nikkei 225 (NKY) Stock Average advanced 2.6 percent.

Ten-year yields have dropped 1.5 basis points this month and gained 13 basis points in the quarter that ends tomorrow.

The yen touched 83.01 per dollar today, the lowest since March 11, and reached 116.96 per euro, the weakest since May 14.

Factory Output

Japan’s factory output increased 0.4 percent in February from January, climbing for a fourth month, the Trade Ministry said in Tokyo today. The median estimate of economists surveyed by Bloomberg News was for a 0.1 percent drop.

Treasury 10-year yields advanced six basis points to 3.49 percent yesterday. Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank may need to trim about $100 billion from its plan to buy $600 billion in Treasury securities because the U.S. recovery has gained strength.

U.S. firms added 208,000 workers in March after an increase of 217,000 the previous month, according to the median estimate of economists in a Bloomberg News survey before ADP Employer Services reports the data today.

Nuclear Plant

Losses in Japan’s bonds may be limited on concern conditions will worsen at a nuclear plant crippled by an earthquake and tsunami on March 11.

Japanese Prime Minister Naoto Kan said yesterday that the Fukushima Dai-Ichi nuclear plant’s tsunami defenses were inadequate, while reassuring the public that radiation leaks pose no health threat beyond a 20-kilometer (12.4 mile) evacuation zone.

“As external conditions deteriorate, bonds should weaken,” Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co., wrote in a research note today. “Movement in the market continues to be limited as investors want to see through the impact of the earthquake.”

Yields on Japan’s 40-year government bonds have risen to the highest relative to two-year notes since March 2010, signaling that investors are more concerned about the rising cost to rebuild after this month’s earthquake.

Yields on the longer-maturity bonds are 2.37 percent, or 2.17 percentage points more than those available on two-year notes, according to data compiled by Bloomberg. That’s the widest since March 2010.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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

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