Bloomberg News

Japan Considering 1 Trillion Yen Bond Sale, Officials Say

November 02, 2011

(Updates with bond yields in the fifth paragraph.)

Oct. 20 (Bloomberg) -- Japan may sell about 1 trillion yen ($13 billion) of bonds to fund rebuilding of areas stricken by the March earthquake, according to two government officials who declined to be identified because the plan isn’t public.

The amount is less than estimates of analysts at UBS AG., Mizuho Securities Co. and Nomura Securities Co., which ranged between 1.2 trillion yen and 2.4 trillion yen, as Japan proceeds with its first bond sale dedicated to fund reconstruction from a disaster that has killed or left more than 19,000 missing.

The nation’s credit rating was lowered by Moody’s Investors Service and Standard & Poor’s this year and the government has pledged to curb the biggest debt burden in the industrialized world. Limiting the pace of bond issuance may indicate government concern that funding rebuilding from the record earthquake threatens to weaken the economic rebound.

“This is a positive surprise,” said Kazuhiko Sano, chief debt strategist at Tokai Tokyo Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “The question now is whether the government can succeed in raising taxes to repay the debt and whether the spending will be enough for reconstruction.”

The yield on the benchmark 10-year bond fell two basis points to 1.01 percent as of 3:06 p.m. today. Yields on the five-year note slid one basis point to 0.37 percent, and were unchanged at 0.15 percent for the two-year security.

Analyst Estimates

The Nikkei newspaper earlier reported a plan to raise as much as 1 trillion yen from bond sales to individual investors. After that report, UBS revised its debt estimate of bonds sold to institutional investors to 1.6 trillion yen from an earlier estimate of 2.4 trillion yen. As of yesterday, Mizuho Securities Co. forecast 2 trillion yen and Nomura had predicted between 1.2 and 1.4 trillion yen.

Prime Minister Yoshihiko Noda is scheduled to convene an extraordinary diet session this week to discuss spending for the third supplementary budget and raising taxes to help pay for reconstruction costs.

Fifty-eight percent of Japanese people oppose a tax increase as a means of paying for post-earthquake rebuilding, compared with 39 percent who support the plan, according to a Mainichi newspaper survey published on Oct. 3.

Bond sales to the market are expected to rise to a record 144.9 trillion yen this fiscal year, the government said in a budget proposal in December.

Moody’s lowered Japan’s sovereign-credit to Aa3 on Aug. 24, noting that “weak” prospects for growth and rebuilding costs from the March disaster hamper the government’s ability to control its debt load. S&P has a negative outlook on its Japan’s AA- in grade.

--With assistance from Hidenori Yamanaka in Tokyo. Editors: Lily Nonomiya, Ken McCallum

To contact the reporters on this story: Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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