By Theresa Barraclough Dec. 5 (Bloomberg) -- Japanese 20-year bonds fell for a second day, completing the first weekly drop in a month, on concern debt sales will increase next year. Demand for bonds waned as Prime Minister Yukio Hatoyama prepared a stimulus package to help boost a nation struggling with falling prices. Bonds to be issued in the fiscal year starting April 1 may reach 146.2 trillion yen compared with a revised 132.3 trillion yen this year, according to Citigroup Global Markets Japan Inc. “The supply and demand balance is under focus again,” said Tetsuro Sawano, a senior bond strategist at Mitsubishi UFJ Securities Co., a securities unit of Japan’s largest bank by assets, in Tokyo. The yield on the 2.1 percent bond due September 2029 rose 4.5 basis points, or 0.045 percentage point, to 2.05 percent this week in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.643 yen to 100.703. Yesterday, 20-year yields gained four basis points. Ten-year yields added four basis points for the week to 1.285 percent. Bond futures for December delivery dropped 0.15 yesterday to 139.91 as of the afternoon close at the Tokyo Stock Exchange. The contracts climbed 0.09 this week. BOJ Measures Demand for shorter-term notes rose this week as the Bank of Japan announced a 10 trillion yen lending program that will offer three-month loans at 0.1 percent. Two-year yields fell 5.5 basis points this week to 0.17 percent. The three-month Tokyo interbank offered rate, or Tibor, fell to 0.484 percent yesterday, compared with 0.521 percent at the end of last week, according to the Japanese Bankers Association. “The decline in Tibor rates will put a lid on any increases in two- and five-year yields,” said Akihiko Inoue, chief market analyst in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank. Governor Masaaki Shirakawa said the BOJ is prepared to provide more funds if necessary amid government pressure for policy action after the yen surged to a 14-year high last week. Additional Easing “We expect the Bank of Japan to take additional monetary easing measures in the future,” Junko Nishioka, chief economist at RBS Securities Japan Ltd., wrote in a report. “It is natural to expect the BOJ to maintain a near-zero-rate policy for longer than the markets are now pricing in.” Traders this week added to bets policy makers will reduce interest rates. Yields on euroyen contracts for December delivery were at 0.455 percent yesterday, from 0.505 percent at the end of last week at the Tokyo Financial Exchange. The central bank will avoid raising interest rates through next year, according to economists surveyed by Bloomberg News. Bonds maturing in more than 10 years have handed investors a loss of 1.3 percent in 2009, heading for the worst year since 2003, according to indexes compiled by Merrill Lynch & Co. Japan’s public debt burden, which is approaching 200 percent of the nation’s gross domestic product, is the largest in the industrialized world. To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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