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Indonesia Bonds Rise on Japan Inflows Speculation; Rupiah Falls

The yield on Indonesia’s 10-year government bonds touched a five-week low amid speculation the Bank of Japan’s monetary easing will increase fund inflows into emerging markets. The rupiah weakened.

Global investors have increased holdings of Indonesia’s debt by 7.51 trillion rupiah ($773 million) since April 3, the day before Japan’s central bank said it would buy 7.5 trillion yen ($75 billion) of bonds per month. The yen fell to a four-year low today, boosting returns on overseas investments for fund managers in Japan. Indonesia’s benchmark interest rate is 5.75 percent, the highest among Southeast Asia’s five biggest economies and more than Japan’s 0.1 percent.

“Investment into Indonesia’s government bonds is quite popular in Japan,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “The yields are relatively high in the region and the prospect of the yen’s depreciation is encouraging investment abroad among Japanese investors.”

The yield on the 5.625 percent notes due May 2023 was 5.451 percent as of 4:22 p.m. in Jakarta, compared with 5.454 percent yesterday, according to prices from the Inter Dealer Market Association. The rate touched 5.44 percent earlier, the lowest level since March 13.

The rupiah fell 0.1 percent to 9,714 per dollar, according to prices from local banks compiled by Bloomberg. That is a 0.2 percent premium to the currency’s one-month non-deliverable forwards, which declined 0.1 percent to 9,735 today, data compiled by Bloomberg show.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 13 basis points to 5.94 percent.

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