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Japan must boost credibility of bonds as exodus to stocks hikes rates: Amari

by Yoshiaki Nohara and Yuji Okada

Bloomberg

Japan’s government must demonstrate a commitment to fiscal rehabilitation to boost the credibility of government bonds and prevent a spike in long-term yields as soaring stocks damp the allure of the nation’s sovereign debt, Economy Minister Akira Amari said.

“As stocks have rallied this much, it’s a common economic phenomenon and principle that capital shifts from bonds to stocks,” Amari said on NHK Sunday. “We need to enhance the credibility of government bonds to prevent a rise in long-term yields.”

The Nikkei 225 stock average closed at 15,138.12 on Friday, the highest since Dec. 28, 2007. Yields on 10-year Japanese government bonds were at 0.795 percent, capping a weekly gain of 10.5 basis points, data compiled by Bloomberg show. The benchmark yield touched a high of 0.92 percent May 15, the highest in over a year.

The Nikkei has surged 46 percent this year as Prime Minister Shinzo Abe pledged to beat deflation and the Bank of Japan introduced unprecedented monetary easing, sending the yen plunging and boosting the outlook for exporters. The yen touched 103.31 per dollar on Friday, the weakest since October 2008.

The Nikkei 225 has rallied a bit faster than expected, Amari claimed. He declined to comment on an appropriate exchange rate for the yen or whether it has weakened to the point where its negative effects need to be contained.