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Japan 10-Year Bond Yields Fall to 9-Year Low on BOJ Easing Bets

Japan’s government bonds rose, sending 10-year yields to a nine-year low, amid expectations the central bank will increase debt purchases to support the economy.

Benchmark bonds advanced for a second day before Shinzo Abe, the front-runner to become the next prime minister, and incumbent Yoshihiko Noda debate policies tomorrow ahead of a general election next month. Japanese shares have fallen from a six-month high and the yen has strengthened as the world’s third-largest economy is forecast to be entering a recession.

“I expect to see 10-year yields drop below 0.7 percent,” said Tetsuya Miura, chief market analyst at Mizuho Securities Co., one of the 25 primary dealers obliged to bid at sovereign debt sales. “Everybody knows that the government and the central bank have to boost stimulus to exit deflation and weaken the yen.”

The yield on the benchmark 10-year note fell 1 1/2 basis points to 0.715 percent, the lowest since June 2003, as of 4:35 p.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 0.8 percent security maturing in September 2022 added 0.138 to 100.778 yen.

Ten-year bond futures for December delivery advanced as much as 0.18 to a nine-year high for a lead contract of 144.80 today.

The Topix index of Japanese shares dropped 1.3 percent to 771.39 today after reaching 787.74 on Nov. 26, the highest since May 2. The yen jumped as much as 0.5 percent to 81.72 per dollar, rekindling concern a stronger local currency will hurt earnings at domestic exporters.

Recession Forecasts

Japan’s gross domestic product will probably shrink 0.4 percent in the three months ending Dec. 31 after a 3.5 percent decline in the third quarter, according to the median estimate of economists surveyed by Bloomberg. Two-straight quarters of contraction would meet the technical definition of recession.

Abe, who was the prime minister for a year through September 2007, said yesterday that the Bank of Japan isn’t taking responsibility for the real economy. He called for adding a mandate to spur inflation as part of any changes to the law governing the central bank.

The BOJ aims for annual inflation of 1 percent and currently buys securities including government bonds through its 66 trillion-yen ($806 billion) program.

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