Japanese government bonds rose Wednesday, pushing 10-year yields below 1 percent for the first time since August 2003, as the yen’s advance to an eight-month high against the dollar damped the outlook for exporters’ earnings.
Ten-year bonds gained for a fifth day on speculation the surging yen will increase deflationary pressure, enhancing the purchasing power of the fixed payments from debt.
Bonds also advanced as Asian stocks fell before U.S. reports this week that economists predict will show service industries grew at a slower pace and payrolls shrank for a second month.
“There’s a good chance that the global economy will slip into a second dip,” said Koji Ochiai, chief market economist at Mizuho Investors Securities Co. “Yields are going down not only in Japan, but also globally. That’s different from 2003. Japan’s yields will stay under downward pressure below 1 percent.”
The yield on the 1.1 percent bond due in June 2020 fell two basis points to 1 percent as of 1:48 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose ¥0.180 to ¥100.897. The yield earlier dropped to 0.995 percent, the lowest since Aug. 14, 2003.
Ten-year bond futures for September delivery gained 0.29 to 142.26 on the Tokyo Stock Exchange after reaching 142.33, the highest for a benchmark contract since August 2003. Ten-year yields may fall to 0.95 percent by the end of September, Ochiai said. If his forecast proves accurate, investors who bought Wednesday will make a 0.5 percent return.
The yen rose as high as 85.33 to the dollar, its strongest level since Nov. 27. The Nikkei stock average fell 2 percent.
“As a slowdown in the economy locks the yen in an uptrend, pressure is set to rise on the Bank of Japan to do additional easing,” said Akio Kato, team leader of Japanese debt at Kokusai Asset Management Co., which runs the $39.5 billion Global Sovereign Open fund. “The most promising option is to increase its bond purchase operation.”
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