By Yoshiaki Nohara Feb. 5 (Bloomberg) -- Japan’s bonds gained for the first time in seven days as stocks extended a global equity plunge, boosting demand for the relative safety of government debt. Five-year yields fell from the highest level in two months as shares of exporters such as Canon Inc. led equity losses after the yen’s gain to eight-week high versus the dollar damped the outlook for exports. Long-term bonds found buyers after the yield advantage of 10-year debt over two-year notes held near its highest since May 2006. “Stock losses and a strong yen are causing bonds to be purchased,” said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Securities Co. “Bonds will be bought when 10- year yields approach 1.4 percent.” The yield on the 0.5 percent note due in December 2014 fell 1.5 basis points to 0.525 percent at 3 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.071 yen to 99.881 yen. The yield touched 0.545 percent yesterday, the highest since Dec. 1. On the week, the yield gained 3.5 basis points. Ten-year yields dropped half a basis point to 1.370 percent. A basis point is 0.01 percentage point. Ten-year bond futures for March delivery gained 0.13 to 138.93 as of the afternoon close at the Tokyo Stock Exchange. The Nikkei 225 Stock Average slid 2.9 percent. The yen climbed to 88.56 per dollar yesterday, the highest since Dec. 14. It traded at 89.54 today. Yield Curve The 10-year yield fell after reaching 1.38 percent yesterday, the highest level since Nov. 12. Its spread against the two-year rate had widened to 1.22 percentage points, the most since May 2006, according to data compiled by Bloomberg. The gap was 1.21 percentage points today. Gains in bonds were limited before a government report that economists said will show the U.S. added the most jobs last month since December 2007, adding to signs the world’s largest economy is recovering. “Bonds remain under selling pressure with the upcoming jobs report, the biggest event of this week,” said Shinji Nomura, a chief bond strategist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third largest banking group. “The U.S. employment situation has hit the bottom, and I expect somewhat positive figures this time.” Bond Rule Bank of Japan Deputy Governor Hirohide Yamaguchi defended the central bank’s self-imposed limit on bond purchases after a lawmaker suggested it could buy more debt to fight deflation. “This isn’t just something we uphold to keep our backyard tidy,” Yamaguchi told parliament in Tokyo today. “Should people mistakenly start to think we are financing government debt, that could create turbulence in financial markets.” The central bank currently keeps its total government bond purchases below the amount of banknotes in circulation. Yamaguchi was responding to a question from ruling Democratic Party of Japan lawmaker Motohisa Ikeda, who asked whether abandoning that rule would enhance the bank’s policy tools to defeat falling prices. The central bank purchases 1.8 trillion yen ($20 billion) of government bonds per month. Stories on analyst recommendations: {NI ANABON BN } For the biggest bond stories: {TOP BON BN } Most read Japanese bond stories: {MNI JPB BN } Japanese Sovereigns: {YCGT0018 DES } Japan’s Treasury and Money Markets: {BTMM JN } --With assistance by Keiko Ujikane and Aki Ito in Tokyo. Editors: Nate Hosoda, Garfield Reynolds To contact the reporter on this story: Yoshiaki Nohara in Tokyo at +81-3-3201-7446 or ynohara1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at +81-3-3201-2078 or rswift5@bloomberg.net.

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