Japan’s Bond Futures Rise as Retail Sales Fall Most in 13 Years

Japan’s bond futures rose to a six-week high after a report showed retail sales sank the most in 13 years, adding to signs last month’s record earthquake and tsunami are sapping consumer demand.

Benchmark 10-year yields touched a one-month low on speculation damage caused by the disaster will force the Bank of Japan to maintain monetary easing measures. Futures also climbed after Treasuries gained yesterday amid bets Federal Reserve policy makers are considering ways to keep yields low. Gains in bonds were limited as Japan’s sovereign-rating outlook was cut to “negative” by Standard & Poor’s.

“Recent economic data have shown how the huge earthquake has weighed on domestic sentiment,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co. “We will need to monitor data for April and May. People aren’t cutting their debt holdings for now.”

Ten-year bond futures for June delivery gained 0.14 to 139.94 as of the afternoon close at the Tokyo Stock Exchange. They earlier touched 139.98, the highest since March 17.

The yield on the 1.3 percent bond due March 2021 fell half a basis point to 1.21 percent at 3:26 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.044 yen to 100.793 yen. The yield earlier reached 1.205 percent, the least since March 25. A basis point is 0.01 percentage point.

Japan’s government bonds have handed investors a 0.3 percent return this month, compared with a loss of 0.3 percent this year, according to an index compiled by Merrill Lynch & Co.

Retail Sales Plunge

Retail sales in Japan tumbled 8.5 percent in March from a year earlier after advancing 0.1 percent in February, the Ministry of Economy, Trade and Industry said today. That’s the biggest decline since March 1998. The median estimate of economists surveyed by Bloomberg was for a 6.1 percent drop.

Japan’s central bank will keep its benchmark interest rate at a range between zero and 0.1 percent tomorrow, according to economists surveyed by Bloomberg News. It will also release a semi-annual economic outlook report.

The March 11 disaster caused as much as 25 trillion yen ($306 billion) in damage, the government estimates.

Consumer prices excluding fresh food declined 0.1 percent in March from a year earlier, according to the median estimate of economists in a Bloomberg News survey before tomorrow’s data. The jobless rate rose to 4.8 percent in March from 4.6 in February, and industrial production slid 10.6 percent last month, according to other Bloomberg surveys ahead of reports tomorrow.

Fed Rate

Treasury 10-year yields fell six basis points to 3.31 percent yesterday. The Fed today will leave the target rate for overnight lending between banks at zero to 0.25 percent at a policy meeting today, according to all 83 economists in a Bloomberg News survey.

In a new move, Fed Chairman Ben S. Bernanke is scheduled to speak to reporters after the Fed releases a policy statement.

The outlook on Japan’s local-currency debt rating, at AA-, the fourth-highest grade, was lowered from “stable,” S&P said, citing the likelihood that reconstruction from last month’s record earthquake will increase its debt burden.

S&P had reduced Japan’s rating by one step in January in the first cut since 2002. Moody’s Investors Service said last month the disaster may bring forward the “tipping point” for the country’s bond market.

“A downgrade is possible if Japan’s public finances weaken further over the next two years in the absence of fiscal consolidation,” S&P said in a statement today.

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