By Yasuhiko Seki March 15 (Bloomberg) -- Japan’s bond futures advanced, ending a two-day drop, on speculation the Bank of Japan will announce additional steps to ease monetary policy. The BOJ will start a two-day meeting tomorrow where policy makers may seek to counter a withdrawal of cash from the financial system upon the expiration of an emergency lending program, according to economists surveyed by Bloomberg News. Bond gains were tempered before the Ministry of Finance sells tomorrow 1.1 trillion yen ($12.1 billion) in 20-year bonds. “There is a chance the BOJ will decide on more monetary easing,” said Masashi Nakamura, an economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second- largest banking group. “This view will push yields down.” Bond futures for June delivery rose 0.07 to 138.92 yen at the afternoon close on the Tokyo Stock Exchange. The yield on five-year notes fell half a basis point to 0.51 percent as of 3:02 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield touched 0.520 percent on March 12, the highest since Feb. 23. Ten-year yields were unchanged at 1.340 percent. A basis point is 0.01 percentage point. The Bank of Japan’s options include expanding a 10 trillion yen fund providing loans to banks, according to two central bank officials who spoke on condition of anonymity. An unlimited collateralized loan facility will end on March 31. Monetary Stimulus The central bank has kept the key overnight lending rate at 0.1 percent since December 2008 and is buying 1.8 trillion yen of government bonds each month. It has lent 9.6 trillion yen under the three-month bank loan program that was introduced in December, close to the current limit. In the unlimited lending facility set to expire this month, there was 5.9 trillion yen outstanding as of Feb. 28. Both facilities offer three-month credit at 0.1 percent. “While additional measures from the BOJ will help contain any spikes in bond yields, the impact may be short-lived if the BOJ fails to surprise the market,” said Akitsugu Bandou, senior economist in Tokyo at Okasan Securities Co. The balance of current-account deposits held at financial institutions is currently about 13 trillion yen, compared with an average of 12.3 trillion yen in the three months prior to the launch of the facility. The Bank of Japan will likely refrain from sharply increasing cash injections, as short-term rates are already close to 0.1 percent, the central bank’s target for overnight lending rates, said Shinsuke Kanabu, a research director at Central Tanshi, a Tokyo-based money market dealer and broker. An increase of 10 trillion yen in the emergency-credit program “will barely raise the total amount of cash added to the banking system,” Kanabu said. “The Bank of Japan’s biggest purpose is to make an announcement to the government, as well as to the currency and stock markets.” Debt Auction Bond gains were limited amid concern Japan’s deteriorating financial state will deter buyers at tomorrow’s sale of long- term debt securities. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds in case prices decline before they can pass on the new securities to investors. “There are lingering concerns that Prime Minister Yukio Hatoyama may boost spending to shore up his support rating,” said Ryutaro Matsuyama, a Tokyo-based strategist at Mizuho Investors Securities Co., one of the 23 primary dealers that are required to bid at government auctions. “Anxiety about worsening public finances will weigh on the longer-end of the yield curve.” Hatoyama has an approval rating of 43 percent this month, down 6 percentage points from February, the Mainichi newspaper said. His disapproval rating rose 8 points to 45 percent. The Mainichi took the telephone survey March 13-14 and obtained 1,035 valid responses. The newspaper didn’t provide a margin of error. To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net

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