Japan’s Bonds Complete Weekly Gain as Yen, China Concerns Weigh on Stocks

Japan’s bonds completed the first weekly advance in a month as the yen’s gain and losses in stocks boosted demand for the safety of government debt.

Bond futures gained for a third day as data showed China’s consumer prices rose more than expected, stoking concern Asia’s largest economy will take more measures to tame growth. Ten-year yields were near the lowest in a week after Economy Minister Kaoru Yosano said raising taxes is an option for funding reconstruction from last month’s record earthquake.

“The yen’s weakening trend against the dollar is reversing, and domestic stocks are falling, supporting bonds,” said Makoto Noji, a senior debt and foreign-exchange strategist in Tokyo at SMBC Nikko Securities Inc.

The yield on the 1.3 percent bond due in March 2021 was unchanged at 1.28 percent at 3:15 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price was 100.175 yen.

The yield earlier touched 1.27 percent, the lowest since April 5, and has declined four basis points this week. Futures on 10-year bonds for June delivery gained 0.02 to 139.10 at the Tokyo Stock Exchange.

The yen rose to as high as 83.16 per dollar today from 83.50 yesterday, when it touched 82.96, the strongest since March 31, while the Nikkei 225 (NKY) Stock Average fell 0.7 percent. A stronger yen reduces the value of overseas income at Japanese companies when converted into their home currency.

China’s Growth

China’s economy grew 9.7 percent in the first quarter while consumer prices increased 5.4 percent in March from a year earlier, the statistics bureau in Beijing said today. The median forecasts in Bloomberg surveys of economists were for economic growth of 9.4 percent and inflation of 5.2 percent.

Demand for debt was tempered on speculation more bonds will need to be sold to pay for reconstruction after last month’s disaster that the government estimates may have caused 25 trillion yen ($300 billion) in damages.

“Movement in bonds has been limited due to the short-term negative outlook for the economy and bond issuance concern,” said Akio Kato, team leader for Japanese debt in Tokyo at Kokusai Asset Management Co., which runs the $32 billion Global Sovereign Open fund.

Prime Minister Naoto Kan has said the government will put together more than one extra budget for rebuilding, starting with a proposed 4 trillion yen initial package.

“We have to issue bonds at the beginning as we can’t increase taxes immediately and, even if we could, we can’t collect money right away,” Vice Finance Minister Mitsuru Sakurai told reporters in Tokyo yesterday. Japan should consider a new tax to help pay for the recovery, said Makoto Iokibe, the chief of a government advisory panel on disaster reconstruction.

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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