Japan’s Bonds Gain on Rising Jobless Rate, Prolonged Deflation
July 30, 2010, 2:49 AM EDTBy Masaki Kondo
July 30 (Bloomberg) -- Japanese bonds rose, with 10-year debt completing a fourth monthly gain, after government reports showed the jobless rate unexpectedly increased and consumer prices declined, boosting demand for the safety of debt.
Benchmark futures rose toward a seven-year high before a U.S. report today forecast to show economic growth slowed last quarter in the world’s biggest economy. A group of ruling-party lawmakers said today they will press Prime Minister Naoto Kan to do more to tackle deflation, which enhances the purchasing power of the fixed payments from debt.
“I don’t think there will be a major change in Japan’s deflationary environment,” said Hisakazu Amano, who helps oversee about $18 billion at T&D Asset Management Co. in Tokyo. “Yields may rebound temporarily, but there seems to be no reason for yields to enter an upward trend.”
The yield on the benchmark 10-year bond fell 1.5 basis points to 1.065 percent as of 3:08 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent security due June 2020 rose 0.134 yen to 100.312 yen. Ten-year yields have dropped two basis points this month.
Ten-year bond futures for September delivery gained 0.12 to 141.84 at 3 p.m. close on the Tokyo Stock Exchange after climbing to 142.08 on July 22, the highest since August 2003.
Bonds advanced after the statistics bureau said Japan’s unemployment rate climbed to a seven-month high of 5.3 percent in June, while economists had estimated 5.2 percent. Factory output slid 1.5 percent from May. Consumer prices excluding fresh food declined 1 percent from a year earlier.
‘Lack of Investment’
“The biggest reason for deflation is a lack of investment opportunities for businesses in the country,” T&D’s Amano said. “The situation won’t improve anytime soon regardless of what measures the central bank or government take.”
A group of Democratic Party of Japan legislators led by Jin Matsubara will present their demands to Finance Minister Yoshihiko Noda today, they said at a meeting in Tokyo. Their proposals include pushing the Bank of Japan to buy long-term government bonds and follow a government policy of setting an inflation target of 2 percent to 3 percent.
‘Japanese-Style Outcome’
The U.S. is closer to “Japanese-style outcome,” Federal Reserve Bank of St. Louis President James Bullard said in a research paper released yesterday.
“The decline in Japanese bond yields will continue because of concern about a slowdown in the U.S. economy,” said Kazuya Ito, a fund manager in Tokyo at Daiwa SB Investments Ltd., a unit of Japan’s second-largest brokerage.
The U.S. was Japan’s second-biggest export market after China by the value of products shipped during the first half of 2010, according to the Ministry of Finance.
Ten-year yields may fall as low as 0.9 percent by Oct. 31, Mizuho Securities Co. forecast in a report today. Investors would get a 1.7 percent return should yields drop to 0.9 percent at the end of October, according to Bloomberg calculations.
--With assistance from Yumi Ikeda in Tokyo. Editors: Nicholas Reynolds, Nate Hosoda.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
