BLBG: Japan’s Five-Year Notes Gain for 3rd Week as Deflation Lingers
By Yasuhiko Seki
Jan. 30 (Bloomberg) -- Japan’s five-year notes rose for a third week as a government report showing deflation extended to a 10th month boosted the appeal of government debt.
Yields touched the lowest in almost four weeks, as Japanese stocks slumped on concern the global recovery is losing momentum, damping demand for higher-yielding assets. Central bank Governor Masaaki Shirakawa yesterday said it’s important to maintain an accommodative financial environment, signaling policy makers are in no hurry to raise interest rates.
“Deflationary pressure remains intact, while there is a risk that the economic recovery will come to a standstill,” said Seiji Shiraishi, chief economist in Tokyo at HSBC Securities Japan Ltd., a unit of Europe’s largest bank by market value. “Bond yields will stay low.”
Five-year yields fell 1.5 basis points this week to 0.49 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 0.5 percent security due December 2014 gained 0.71 yen to 100.047 yen. The yield dropped to 0.48 percent yesterday, the lowest since Jan. 5.
Ten-year bond futures for March delivery gained 0.28 this week to 139.51 on the Tokyo Stock Exchange. Ten-year yields declined one basis point to 1.315 percent.
The Nikkei 225 Stock Average slid 3.7 percent this week and the broader Topix index slumped 4.2 percent, the biggest weekly decline since October.
Bonds advanced as the statistics bureau said yesterday consumer prices excluding fresh food dropped 1.3 percent in December, after falling 1.7 percent in November. The decline in prices came as other reports showed industrial production rose and the unemployment rate declined.
‘Prepared to Act’
“The bank is prepared to act swiftly and decisively should concerns that financial market stability might be hampered reemerge,” Shirakawa said yesterday in Tokyo. Japanese bond yields are low despite the nation’s fiscal situation because they are set by people’s expectations for growth and inflation, he said.
The central bank left its benchmark rate unchanged at 0.1 percent on Jan. 26 and said it remained committed to fighting deflation as gains in the yen threaten to stunt the recovery.
“The BOJ may introduce additional easing should contingency risks including further appreciation of the yen emerge,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Ltd. “A strong belief that the BOJ won’t hike interest rates for the next few years will continue to serve as a key buffer for any declines in bonds.”
Debt Sales
The gain in bonds this week was tempered on speculation the nation’s ballooning debt will reduce demand at a 10-year debt sale next week.
“Growing concerns over fiscal risk may push up bond yields,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., one of the 23 primary dealers that are required to bid at the government’s debt auctions.
Sales of new bonds may climb to 51.3 trillion yen ($569 million) in the year starting April 2011, according to a Finance Ministry document. That would be a 16 percent increase from next fiscal year’s projected 44.3 trillion yen.
Standard & Poor’s on Jan. 26 cut its outlook for Japan’s AA credit rating to “negative” from “stable,” saying Prime Minister Yukio Hatoyama lacks a plan to rein in the world’s largest debt burden.
To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net
