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Japan Yields to Return to 7-Year Low on Kan Victory, Tokai Says

Japan’s 10-year bond yields will hold at 1 percent before returning to a 2003 low as Prime Minister Naoto Kan’s reelection eases concerns bond issuance will increase, according to Tokai Tokyo Securities Co.

Kan defeated Ichiro Ozawa in an election on Sept. 14 to retain leadership of the ruling Democratic Party of Japan. Ozawa had said government bond sales may have to increase to pay for spending measures.

“Concerns that Japan’s bond sales will surge receded after the DPJ election,” said Kazuhiko Sano, chief strategist at Tokai Tokyo. “With the underlying theme of U.S. and global slowdowns remaining intact, Japan’s long-term yields will likely hover around 1 percent for the time being.”

Yields may decline to the 0.895 percent this year and to as low as 0.75 percent by March 31, Sano said.

Ten-year yields slid to 0.895 percent on Aug. 25, the lowest since 2003. Yields began to rise after Ozawa announced he would challenge Kan the following day. They climbed to as high as 1.195 percent on Sept. 6.

Ozawa, who heads the DPJ’s largest faction, pledged to double a monthly childcare allowance and extend the period of subsidies for energy-efficient household appliances. Kan’s 920 billion yen ($10.8 billion) stimulus plan is less than half the amount Ozawa had proposed. Kan has pledged to balance Japan’s budget in 10 years.

The winner of the election was assured of being prime minister because the DPJ controls the lower house.

Ten-year yields rose to 1.10 percent on Sept. 15 after Japan intervened in the foreign-exchange market for the first time since 2004. They fell back to a two-week low of 1.025 percent the next day, even as the yen declined against the dollar and stocks rose after the intervention.

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