Japan’s Bonds Rally as BOJ Buys Debt, Domestic Stocks Pare Gain

Japanese bonds rose, sending benchmark yields lower for the first time in seven sessions, as the central bank bought government debt for the third time this month and domestic shares pared an early surge.

The Bank of Japan said today it would buy 1 trillion yen ($10 billion) in notes from one to 10 years in maturity as part of its plan to stimulate growth through low borrowing costs. Tokyo won the right to host the 2020 Olympics, and data showed Japan’s economic growth in the second quarter was faster than originally estimated. The Ministry of Finance will sell 600 billion yen in 30-year government bonds tomorrow.

“The Tokyo Olympic decision pushed stocks higher and the yen weaker in morning trading, but as they lost steam, bonds attracted buying,” said Takafumi Yamawaki, the Tokyo-based chief rates strategist at JPMorgan Chase & Co., one of 23 primary dealers obliged to bid at government debt sales. “We also had the BOJ operation, but I didn’t expect yields to fall by these degrees.”

Japan’s 10-year yield slid four basis points to 0.75 percent as of 4:30 p.m. in Tokyo, according to Japan Bond Trading Co. The five-year rate declined two basis points to 0.27 percent. The 20- and 30-year rates both slid 2 1/2 basis points to 1.68 percent and 1.805 percent, respectively. A basis point is 0.01 percentage point.

The Topix index of shares closed 2.2 percent higher after rising as much as 2.7 percent. The yen lost 0.4 percent to 99.49 per dollar after falling to as weak as 100.11.

Tokyo, which staged the 1964 Summer Games, beat Madrid and Istanbul to win the 2020 host role, the International Olympic Committee said Sept. 7 in Buenos Aires.

Sales Tax

Gross domestic product in Japan rose an annualized 3.8 percent in the second quarter from three months before, compared with a preliminary estimate of 2.6 percent, the Cabinet Office said in Tokyo today. First quarter growth was revised to 4.1 percent, the fastest in a year, from 3.8 percent.

There is a high chance Prime Minister Shinzo Abe will decide on Oct. 1 whether to go ahead with a planned increase in the sales tax, Economy Minister Akira Amari said today in Tokyo. BOJ Governor Haruhiko Kuroda last week signaled policy makers can use extra fiscal and monetary stimulus to offset any hit to growth from the tax which the government may increase 3 percentage points to 8 percent in April.

The BOJ today offered to buy 400 billion in five- to 10-year notes, 350 billion yen in three- to five-year securities and 250 billion yen in one- to three-year notes.

The 10-year U.S. Treasury yield slid one basis point to 2.92 percent today after a six point drop on Sept. 6. Labor Department figures that day showed that U.S. payrolls rose by 169,000 last month, less than the 180,000 estimate 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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