Yen's continued ascent, with few remedial options in sight, set to further dent carmaker's earnings

BOJ stimulus pleases debt holders

Bloomberg

Holders of Japanese government debt got what they wanted from the Bank of Japan’s stimulus last week, while Nissan Motor Co. Chief Executive Officer Carlos Ghosn had little reason for cheer as the yen continued to rise.

Japan’s 10-year yields slid to 0.885 percent, seven basis points from a nine-year low, after the BOJ said Friday it will add ¥10 trillion to a ¥19 trillion program to buy government debt. The yen advanced 0.9 percent versus the dollar the same day, the biggest gain in two weeks, and rose more than 3 percent in the past month to touch ¥79.74 Monday, the most since Feb. 22, data show.

Ghosn likened the rising yen last week to a “1,000-pound (453-kg) gorilla” wrecking the automaker’s earnings by reducing overseas profits and making its cars pricier abroad. Currency relief demanded by Nissan and other exporters may be harder for the BOJ to deliver through monetary policy now as the two-year U.S. and Japanese yield spread has narrowed to the February low, damping money flows that will weaken the yen.

“Regardless of what the BOJ does, Japan’s economy will never get better,” said Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “Bond yields have much more room to fall.”

Japan’s 10-year rate dropped one basis point Tuesday to 0.875 percent, the lowest since October 2010, when yields reached 0.82 percent, the least since record lows were set in 2003. That compares with yields of 1.92 percent for similar-maturity bonds in the U.S. and 1.66 percent in Germany on Monday. Japan’s five-year yield slid to 0.255 percent, also the lowest since October 2010.

In addition to boosting its planned debt purchases, the BOJ extended the maximum maturity of government bonds it buys as part of its asset-purchase program to three years from two, it said in a statement Friday.

The BOJ surprised markets Feb. 14 by increasing easing and setting a 1 percent inflation goal. The yen slid more than 7 percent to an almost one-year low against the dollar in the weeks after the BOJ meeting.

The currency’s weakness has dissipated as the two-year yield gap, described as having a “relatively high” correlation to the currencies by BOJ Gov. Masaaki Shirakawa, narrowed 0.14 percentage point last week, the least since Feb. 9.

Japan’s two-year note yield of 0.11 percent is barely above the 0.1 percent interest financial companies get from the BOJ on their deposits that exceed the reserve requirement, reducing investors’ incentive to buy the securities.

Elsewhere in Japan’s credit markets, Poland is planning its first yen-denominated bond sale in the Japanese markets since July. It will offer five-year samurai notes yielding between 1.3 percent and 1.7 percent this month, according to a Tuesday filing with the Finance Ministry.

Syndicated loans in Japan increased for the first time since 2008 as companies sought bank debt for overseas expansion and utilities suspended bond sales due to the Fukushima nuclear disaster that started last year. Lending increased 23.5 percent to ¥28.7 trillion in the year that ended on March 31 from the previous 12 months, according to figures released by the Japanese Bankers Association last week.

The Tokyo Metropolitan Government plans to meet bond investors in Seoul on May 14, Hong Kong on May 15 and Singapore on May 16, according to a source. The municipality hired Bank of America Corp., Citigroup Inc. and Daiwa Securities Group Inc. to arrange a debt transaction, said the source, who asked not to be identified because the details are private.

The extra yield investors demand to hold the nation’s corporate debt instead of government securities has fallen four basis points, or 0.04 percentage point, this year to 46 basis points as of Monday. That is about a fifth of what companies have to pay globally, indexes compiled by Bank of America Merrill Lynch show.

Five-year credit-default swaps linked to Japanese government bonds were at 93.5 basis points Monday, down from a record high of 154.8 basis points in October, according to CME Group Inc.’s CMA. Lower premiums signal improving perceptions of creditworthiness among investors.

BOJ Policy Board members predicted that consumer prices will advance 0.7 percent in the year to March 2014, up from a prior estimate of 0.5 percent, while still below the BOJ’s goal.

Honda Motor Co., Nissan’s bigger competitor in terms of market capitalization, forecast last week that net income will double in the year that started April 1 after the stronger yen contributed to a 60 percent drop in earnings the previous year. Nintendo Co. said it will turn profitable this year after posting a net loss. Both base their projections on the assumption the yen will average ¥80 per dollar.