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Buy Japanese Bonds at Yields Above 1.15%: Technical Analysis

Investors should buy Japan’s 10-year bonds if yields rise above the key level of 1.15 percent, Mizuho Securities Co. said, citing trading patterns.

Benchmark yields declined from a high of 1.405 percent on April 7 to a low of 0.895 percent on Aug. 25 during the fiscal first half ending Sept. 30. During the period, yields closed within a range of 1.10 percent to 1.15 percent on a compound basis more than 16 percent of the trading days, said Tetsuya Miura, chief market analyst at Japan’s second-largest banking group. Trading was thin when yields were from 0.95 percent to 1.00 percent and from 1.15 percent to 1.20 percent, he said.

“The bond market will likely begin the second half with range-bound trading -- sell at yields below 1 percent and buy at yields above 1.15 percent,” Miura said.

Government attempts to revive economic growth are unlikely to succeed in the coming fiscal second half, holding down yields during the period, Miura said. The strong yen and the expiration of subsidies for environmental-friendly cars will likely slow growth in the fourth quarter, he said.

Yields may be bolstered by the government’s budget and bond-sale plans for the fiscal year, Miura said. Demand for bonds may be limited should Japan fail to meet its pledge to cap annual spending at 71 trillion yen ($837 billion), he said.

“Any rise in long-term yields in the fiscal second half will be temporary,” Miura said. “Investors should make sure to buy on dips when yields rise above 1.15 percent.”

The yield on the benchmark 10-year bond sank three basis points to 1.015 percent as of 10 a.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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