Japan’s Bond Yields Decline Most in Two Months as Stocks Tumble

Japan’s bonds climbed, setting 10-year yields up for their biggest decline in more than two months, as a plunge in shares boosted demand for safer assets.

Yields on securities with a maturity of five years or longer fell as the yen climbed to the strongest since April 4 when the Bank of Japan said it would double monthly debt purchases to achieve 2 percent inflation. The nation’s bonds advanced along with Treasuries before a policy-setting meeting of the Federal Open Market Committee on June 18-19.

“Bonds are being bought because of yen appreciation and stock declines,” said Shuichi Ohsaki, a strategist in Tokyo at Bank of America Merrill Lynch. “Investors would like to see the outcome of the FOMC meeting next week.”

The yield on Japan’s benchmark 10-year note dropped 7 1/2 basis points to 0.795 percent as of 11:06 a.m. in Tokyo, set for the biggest slide since April 4. The 0.8 percent security due June 2023 added 0.690 yen to 100.046, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 10-year U.S. Treasury yield fell 3 basis points to 2.20 percent.

Japan’s 5-year yield declined 3 basis points to 0.305 percent, while the 20-year yield fell 4 1/2 basis points to 1.65 percent. The thirty-year yield retreated 4 basis points to 1.78 percent. A basis point is 0.01 percentage point.

The Topix index of local shares tumbled as much as 5.1 percent. It’s lost 19 percent since it reached an almost five-year high on May 23. The yen strengthened 1.2 percent to 94.84 per dollar, clouding the earnings prospects of exporters.

BOJ board member Sayuri Shirai said today that Japanese stocks and the yen are in a correction period. She is slightly more mindful of downside risks to the fiscal 2014 outlook for consumer prices, Shirai said.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Nobuyuki Akama in Tokyo at akam@bloomberg.net

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

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