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Japan Bond Futures Rise on Speculation BOJ to Ease as Yen Gains

Japanese bond futures rose for a second day after the yen’s surge to a 15-year high sparked speculation the central bank will ease monetary policy.

Benchmark 10-year yields briefly fell below 0.9 percent for the first time in seven years as Finance Minister Yoshihiko Noda said the ministry is “closely” cooperating with the Bank of Japan and will take action on currencies when necessary. The yen gained against the dollar yesterday after a private report showed sales of existing U.S. homes plunged by a record.

“The rapid worsening of U.S. economic indicators is breathtaking,” said Takafumi Yamawaki, chief rates strategist at JPMorgan Chase & Co. in Tokyo. “Expectations for an economic recovery are falling among market participants, and there’s a sense that authorities globally have to ease policies further.”

Ten-year bond futures for September delivery gained 0.14 to 143.06 at the 3 p.m. close of the Tokyo Stock Exchange, the highest level since June 2003.

The yield on the benchmark 10-year bond fell half a basis point to 0.905 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent bond due June 2020 rose 0.045 yen to 101.756. The yield earlier dropped to 0.895 percent, the lowest for 10-year yields since Aug. 13, 2003.

Finance Minister Noda told reporters today that he is prepared to take “appropriate action when necessary” and that he will continue to watch currency movements very closely. Noda’s comments came after the Nikkei newspaper reported today the government may consider currency intervention.

BOJ Meeting

The BOJ’s policy board may meet before their next meeting scheduled on Sept. 6-7 depending on market conditions, the Nikkei also reported. A program that provides funding to lenders at 0.1 percent may be expanded to 30 trillion yen ($356 billion) from 20 trillion yen, and the duration of the loans may be doubled to six months, the newspaper said without citing anyone.

“The BOJ will likely be forced to take additional easing measures because of increasing concerns over the stronger yen and falling stock prices,” said Eiji Dohke, a chief JGB strategist in Tokyo for Citigroup Inc.

The yen appreciated to 83.60 per dollar yesterday, the strongest since June 1995. It strengthened versus the euro to 105.44, a level unseen since July 2001.

The Nikkei 225 Stock Average slid 1.7 percent today to the lowest close since April 2009. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated.

A government report showed today that the nation’s export growth slowed to 23.5 percent in July from a year earlier, after climbing 27.7 percent in June.

Losing Competitiveness

“If the dollar-yen stays at this level, exporters will have to lower their earnings outlooks, forcing them to raise prices for products,” Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo, wrote in a report today. “That will lower their price competitiveness.”

Purchases of existing houses in the U.S. plummeted by a record 27 percent in July, figures from the National Association of Realtors showed yesterday. The Standard & Poor’s 500 Index slid 1.5 percent in New York to the lowest close since July 6.

The global economic recovery is slow and “fragile,” said David Wyss, chief economist at Standard & Poor’s. “Any kind of outside shock could easily still turn this into another recession,” he said in a seminar in Tokyo yesterday.

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