Japanese Bonds Fall as Abe Mulls Snap Election on Tax Hike Plan

Japanese bonds dropped on concern that Prime Minister Shinzo Abe will call for a snap election before he decides whether to delay a sales-tax increase that would help rein in the world’s largest debt burden.

The benchmark 10-year bond yield rose 3 1/2 basis points to 0.525 percent as of 3:16 p.m. in Tokyo. It was the highest level in five weeks. The price of the 0.5 percent security due September 2024 fell 0.33 yen to 99.765. Lawmakers yesterday said they were preparing for a possible snap election. The decision is linked to a call on whether to go ahead with raising the levy in 2015, one ruling party member said.

Delaying or canceling the October 2015 tax increase threatens to hurt investor confidence in Abe’s ability to simultaneously spur economic growth and contain a debt load that reached 1.039 quadrillion yen ($9.02 trillion) at the end of September. Data on Japan’s gross domestic product next week is forecast to show the economy is struggling to recover from its sharpest contraction since the first quarter of 2009.

“Now is the time to stop buying JGBs,” Eiji Dohke, chief JGB strategist in Tokyo at Citigroup Inc., wrote in a report dated today. “The sales tax increase and the possible dissolving of the parliament can accelerate yen weakness and stocks gain that will weigh on JGBs.”

The benchmark Nikkei 225 Stock Average closed at its highest since October 2007.

Twenty-year yields climbed to 1.3 percent, a level not seen since Oct. 31.

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