By Theresa Barraclough Dec. 11 (Bloomberg) -- Japan’s government bonds fell for a second day on speculation the government will step up debt issuance next year to finance economic stimulus packages. Demand for debt waned as Prime Minister Yukio Hatoyama said it may not be possible to keep bond sales below his government’s target of 44 trillion yen ($498 billion) next fiscal year. The Ministry of Finance said on Oct. 30 that it will boost debt sales in the year ending March 31 by 2.1 trillion yen to 132.3 trillion yen. Government bonds completed a weekly gain before a report next week that may add to signs the recovery is stalling. “Depending on the fiscal budget and stimulus measures, there may be an increase in debt issuance,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., one of the 23 primary dealers that are required to bid at government debt sales. “Bonds will continue on a bearish note.” The yield on the 1.3 percent bond due December 2019 rose 2.5 basis points, or 0.025 percentage point, to 1.275 percent as of 4:20 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price declined 0.223 yen to 100.221 yen. The yield declined one basis point this week. Ten-year bond futures for March delivery dropped 0.23 to 139.50 as of the afternoon close at the Tokyo Stock Exchange. The contracts rose 0.05 on the week. Ten-year yields are likely to climb to 1.35 percent by the end of the year, according to a Bloomberg survey of economists. The estimate puts a heavier weighting on more recent forecasts. Should the predictions prove accurate, investors who buy the debt today would make a 0.6 percent loss, according to Bloomberg data. Annual Loss Japanese government bonds due in more than 10 years have handed investors a loss of 1.4 percent this year as Hatoyama unveiled a 7.2 trillion yen stimulus package that included employment subsidies, loan guarantees and incentives to buy energy-efficient products. Hatoyama said today he hadn’t “given up” on the 44 trillion figure for bond sales in the year starting April 1. “The job of the government is to protect the lives of its citizens,” the prime minister said today in Tokyo. “It’s not a debate over whether to go over by 1 yen or not.” Nikkei English News reported earlier that Hatoyama said the number was a target, not a ceiling, for debt sales. “The anxiety surrounding government finances is increasing,” said Masaru Hamasaki, chief strategist at Tokyo- based Toyota Asset Management Co., which oversees the equivalent of $14 billion. “Stocks have also stopped falling. There aren’t enough factors to continue buying bonds.” The Nikkei 225 Stock Average gained 2.5 percent, snapping three days of losses. The MSCI Asia Pacific Index of regional shares advanced 1 percent. BOJ’s Tankan Government bonds still completed a weekly gain on speculation a Bank of Japan report next week will show a gauge of confidence rose the least since the economy emerged from its worst postwar recession. The Tankan index of sentiment among large manufacturers will climb 6 points to minus 27 in December, according to the median forecast of economists surveyed by Bloomberg News before the Dec. 14 report. That would be the smallest improvement since the first quarter of this year. A negative number means pessimists outnumber optimists. Sentiment has been tempered as the yen rallied 4.3 percent last month, eroding profits of exporters including Toyota Motor Corp. and Canon Inc. Japan’s currency reached 84.83 per dollar on Nov. 27, the strongest level since July 1995. It traded as weak as 88.96 today. To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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