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JGB Yield to Hit 0.8% on Global Slump, Societe’s Shimamoto Says

Japan’s benchmark bond yields may drop to the lowest since 2003 in the first quarter of next year, as Europe’s debt woes weigh on global growth, according to Societe Generale Securities.

“Japan’s long-term yields may slide further, if deflation deepens amid the intensifying European debt crisis,” Koji Shimamoto, branch manager and head of research at Societe Generale in Tokyo, said in an interview on Dec. 14.

Ten-year yields reached a seven-year low of 0.82 percent in October 2010. The rate has fallen three basis points this week to 0.98 percent as of 3:04 p.m. in Tokyo.

The European Central Bank on Dec. 8 cut its euro-area growth forecast for next year to 0.3 percent from its previous estimate of 1.3 percent. ECB Executive Board Member Peter Praet said on Dec. 9 that global economic growth will remain “sluggish.”

A series of elections are scheduled in key economies for next year when the world is likely to face growing “tail risks,” which will force Japan, the U.S. and Europe to boost monetary stimulus, Shimamoto said. Presidential elections will be held in France in April and in the U.S. in November.

On Nov. 30, six central banks including the Federal Reserve, the ECB and the Bank of Japan made it cheaper for banks to borrow dollars as Europe’s crisis drove demand for funding in the U.S. currency. The ECB, which cut its key interest rate to match a record low 1 percent on Dec. 8, has scope to reduce rates further and may do more to ease credit, Shimamoto said.

“That will help lower financing costs for financial institutions, pressuring the Fed and BOJ to ease as well,” he said.

Shimamoto expects Japan’s 10-year yields will range from 0.8 percent to 1.6 percent next year. The rates will be at 1.11 percent by March and 1.25 percent by December 2012, according to weighted average of estimates by analysts in a Bloomberg survey.

To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

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

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