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Japan Bonds Post Biggest Weekly Gain in a Month on Stocks Drop
0917609648 Thúy

By Issei Morita
Nov. 25 (Bloomberg) -- Japan's 10-year bonds had the biggest weekly gain in almost a month as a drop in the Nikkei 225 Stock Average increased demand for government debt.
Benchmark bonds rose as the Nikkei this week fell the most since July after the government cut its evaluation of the economy for the first time in almost two years on Nov. 22. Bank of Japan policy maker Toshikatsu Fukuma yesterday said asset price gains don't pose an ``immediate'' threat to the economy.
``The drop in stocks was definitely supportive for the Japanese government bond market'' this week, said Keiko Onogi, a fixed-income strategist in Tokyo at Daiwa Securities SMBC Co., a subsidiary of Daiwa Securities Group Inc., Japan's second- largest brokerage.
The yield on the 1.8 percent bond due September 2016 fell 5.5 basis points this week, the biggest decline since the week ended Oct. 27. Yesterday the yield fell half a basis point to 1.655 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. A basis point is 0.01 percentage point.
The Nikkei 225 lost 2.2 percent on the week, the biggest decline since the five days ended July 14. Ten-year yields had a correlation of about 0.88 with the Nikkei during the past two months, according to data compiled by Bloomberg. A value of 1 means the two moved in lock step.
Dovish Enough
``A decline in share prices supported government bonds,'' said Satoshi Yamada, who helps oversee the equivalent of $6.2 billion in assets at Japan Investment Trust Management Co. in Tokyo. ``Central bank's Fukuma avoided giving hawkish signals about the rate policy.''
Japan's government cut its assessment for the economy after the stock market closed on Nov. 22.
The central bank will closely judge when to raise interest rates and does not have any preconceived timing, Fukuma said in a speech to business executives in Ibaraki Prefecture.
``His views on the economy and prices are dovish enough to spur some buying,'' said Katsutoshi Inadome, a debt strategist at Mitsubishi UFJ Securities Co. in Tokyo.
Shares of exporters fell as the yen traded near the highest in more than two months against the dollar, spurring speculation profits at companies such as Honda Motor Co. and Sony Corp. will drop. The yen rose as high as 116.04 against the dollar on Nov. 23, the strongest since Sept. 7.
`Next Rate Increase'
Gains in government bonds were limited on concern Bank of Japan Governor Toshihiko Fukui will signal the central bank is ready to lift borrowing costs. He will speak in Osaka on Nov. 27.
Bonds are set for the worst year in three after the BOJ ended its deflation-fighting policy in March and raised rates in July for the first time since 2000.
``Central bank officials are likely to give clues about the next rate increase,'' said Jun Fukashiro, a fixed-income fund manager in Tokyo at Toyota Asset Management Co., which has the equivalent of $10 billion in assets under management. ``The bank is probably still confident about the economic outlook.''
Government bonds have handed investors a return of 0.06 percent this year, the least since 2003, according to an index of 229 of the securities compiled by Merrill Lynch & Co.
Japanese bonds also rose on speculation investors are buying to match a change in the benchmark index.
Nomura Securities Co. will add debt including 10- and 20- year bonds sold this month to its Bond Performance Index in December and remove securities due in a year and less. The length of the extension will be the largest in three months, according to Mitsubishi UFJ's Inadome.
``I noticed some buying of longer-dated bonds to match the extension of the index,'' said Yamada at Japan Investment Trust. ``Long-dated bonds, such as 10- and 20-years, are solid.''
The yield on 20-year bonds yesterday fell 2 basis points to 2.13 percent.
``There is some room for yields to decline,'' said Hajime Takata, chief strategist in Tokyo at Mizuho Securities Co. and the second-highest ranked bond analyst in Japan according to Nikkei Bonds and Financial Weekly. ``The economic situation in Japan and the U.S. is declining.''