Japan 10-Year Yields Reach 2003 Low on Kuroda Speculation

Japan’s 10-year bonds rose, pushing down yields to the lowest since June 2003, on speculation Haruhiko Kuroda will become the next central bank governor and expand asset purchases.

Five-year rates declined to levels unseen since the government started issuing the debt in February 2000, and 30-year yields dropped for a third day. Japanese Finance Minister Taro Aso told reporters yesterday that Kuroda would be a “correct” choice as the chief of the Bank of Japan. Kuroda, who currently leads the Asian Development Bank, has said the BOJ has substantial room to ease monetary policy further and additional measures could be justified this year.

“We’re more likely to see the next BOJ governor and deputy decide to buy more government debt,” said Takahiro Sekido, a Japan strategist in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. who formerly worked at the BOJ.

The yield on the benchmark 10-year note fell three basis points to 0.675 percent at 1:15 p.m. in Tokyo from yesterday, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 0.8 percent security maturing in December 2022 advanced 0.278 yen to 101.149.

Five-year rates declined half a basis point to 0.115 percent. Thirty-year yields fell three basis points to 1.87 percent, the least since Sept. 27. Twenty-year yields dropped three basis points to 1.68 percent, the lowest level since Dec. 13. A basis point is 0.01 percentage point.

Ten-year bond futures for March delivery gained 0.24 to 144.91 in Tokyo, after reaching 144.95, the highest for a lead contract since Dec. 10.

Deputy Governors

Prime Minister Shinzo Abe is likely to tap Kikuo Iwata, an academic who has urged a ramping up in Japan’s monetary base to end deflation, and senior BOJ official Hiroshi Nakaso, as deputy governors, according to one government official and a ruling coalition executive, who asked not to be named as the talks are private. Current Governor Masaaki Shirakawa and two deputies will step aside on March 19.

Demand for the refuge of government bonds increased on concern Italy may require a second vote after election results pointed to a divided parliament. The spokesman for Italy’s Democratic Party candidate Pier Luigi Bersani said projections of the election results “show a risk of ungovernability.”

“Italy’s election has created lots of uncertainty and is a risk factor for financial markets,” said Sekido at Bank of Tokyo-Mitsubishi UFJ.

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