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Japan’s Bonds Climb, Send Yields to Year Low, Amid BOJ Easing Speculation

Japan’s bonds rose, sending 10-year yields to an eight-month low, as the yen trading near a postwar high spurred speculation the central bank will add to monetary easing to weaken the currency.

Bond futures advanced for the first time in three days after the Nikkei newspaper said that the Bank of Japan will consider increasing its asset-purchase program at a two-day meeting ending Aug. 5. Government bonds climbed after demand was stronger than expected at an auction of 10-year debt.

“Because I expect the yen to break a record, the central bank’s additional monetary easing is my main scenario,” said Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “My projection for the lower range of 10-year yields is 0.9 percent.”

The benchmark 10-year yield fell four basis points to 1.04 percent as of 3:11 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.2 percent security due June 2021 added 0.362 yen to 101.432 yen. The yield was the lowest since Nov. 17.

Five-year yields declined 1.5 basis points to 0.355 percent, also the lowest since Nov. 17. Ten-year bond futures for September delivery advanced 0.24 to 142.02 at the 3 p.m. close of the Tokyo Stock Exchange.

The yen appreciated to 76.30 per dollar yesterday, nearing the postwar high of 76.25 reached on March 17, the day before Group of Seven countries jointly intervened in currency markets to counter gains in Japan’s currency.

The lowest-accepted price at today’s auction, the minimum at which the government sold 10-year debt, was 100.49 yen, exceeding the 100.47 yen estimated by traders in a Bloomberg News survey. The Ministry of Finance set the coupon rate at 1.1 percent, lowest since the sale in May.

The auction results were “resilient,” said Atsushi Ito, a senior rate strategist in Tokyo at UBS AG, another primary dealer.

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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