Japan Bonds Rise 2nd Day as Yen Gains, Nikkei Enters Bear Market

Japan’s bonds climbed for a second day as a plunge in domestic shares and an advance in the yen boosted demand for safer assets.

Benchmark 10-year yields touched a four-week low as the yen climbed to the strongest since April 4 when the Bank of Japan said it would double monthly debt purchases to achieve 2 percent inflation. The nation’s bonds advanced along with Treasuries before a policy-setting meeting of the Federal Open Market Committee on June 18-19.

“Bonds are being bought because of yen appreciation and stock declines,” said Shuichi Ohsaki, a strategist in Tokyo at Bank of America Merrill Lynch. “Investors would like to see the outcome of the FOMC meeting next week.”

The yield on Japan’s benchmark 10-year note dropped 1 1/2 basis points to 0.855 percent as of 5:11 p.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. It earlier slid to 0.795 percent, the lowest since May 17. The 10-year U.S. Treasury yield sank six basis points to 2.17 percent.

The 20-year yield in Japan fell 2 1/2 basis points to 1.67 percent, and the 30-year yield retreated 1 basis points to 1.81 percent. A basis point is 0.01 percentage point.

The Nikkei 225 Stock Average slumped 6.4 percent to 12,445.38, extending its decline to 20 percent from its May 22 high, passing the threshold some investors use to define a bear market. The yen surged more than 2 percent to as strong as 93.79 per dollar, clouding the earnings prospects of exporters.

BOJ board member Sayuri Shirai said today that Japanese stocks and the yen are in a correction period. She is slightly more mindful of downside risks to the fiscal 2014 outlook for consumer prices, Shirai said.

Japan’s 10-year bond yields have swung from an all-time low of 0.315 percent to as much as 1 percent since the central bank announced in April a plan to double monthly debt purchases to more than 7 trillion yen ($74 billion).

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