Japan’s Notes Advance as Business Sentiment Reaches Record Low
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By Yasuhiko Seki
April 1 (Bloomberg) -- Japan’s five-year government notes advanced after the Bank of Japan’s Tankan survey showed businesses are the most pessimistic on record, stoking demand for debt with yields near three-month highs.
The debt, which yesterday completed its first quarterly loss in a year, gained after the central bank said sentiment at large manufacturers slid to minus 58 in March, from minus 24 in December. The previous record was minus 57 in May 1975. Bond gains were limited amid speculation the government will sell record amounts of debt to fund stimulus measures.
“There seems to be a chance that the Japanese economy may fall off the cliff ahead, which should prevent any spike in yields,” said Yasuhide Yajima, senior economist in Tokyo at NLI Research Institute Ltd. “Given deteriorating economic fundamentals,” bonds may advance.
The yield on five-year notes fell 1.5 basis points to 0.765 percent as of 4:20 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 0.8 percent securities due March 2014 rose 0.072 to 100.167. A basis point is 0.01 percentage point.
The yield on the 1.3 percent bond due March 2019 declined one basis point to 1.33 percent.
Ten-year bond futures for June delivery were unchanged at 138.15 as of the afternoon close on the Tokyo Stock Exchange.
‘Severe State’
The Tankan report also showed the weakening outlook for consumers may start to weigh on retailers and other service companies, which make up about 70 percent of the economy. Sentiment at the country’s largest non-manufacturers fell to minus 31 from minus 9 previously, the biggest drop since the central bank started that survey in 1983. Economists expected a slide to minus 25.
“This is a reflection of the severe state of the economy,” Takeo Kawamura, the chief government spokesman, said of the Tankan report. “We urgently need to draw up new stimulus measures.”
Demand for government debt was tempered after Prime Minister Taro Aso said yesterday additional spending is needed to “prevent the economy from falling through the floor.” He spoke at a press conference in Tokyo before leaving for the Group of 20 summit in London.
Strong Resolution
“Aso yesterday expressed a strong resolution to tackling economic woes with more stimulus measures,” said Hirokata Kusaba, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest bank. “The anxiety or a lack of clarity about burgeoning debt sales should continue to weigh on the JGB market.”
The Ministry of Finance said in December it plans to boost bond sales by 7 trillion yen ($70.8 billion) to 113.3 trillion yen in the financial year beginning today.
The government will sell 1.9 trillion yen in 10-year bonds tomorrow. Primary dealers, which are required to bid at ministry debt sales, may reduce holdings of bonds to prevent potential losses that would arise if prices decline before they can pass on new securities to investors.
The prior sale on March 3 drew bids worth 2.93 times the amount on offer, compared with a so-called bid-to-cover ratio of 2.2 at the February sale.
Short-Term Notes
Demand for shorter-dated notes strengthened on speculation the Bank of Japan will extend measures to help companies raise funds as the economy shrinks.
“To avoid a crisis, the Bank of Japan will have no choice but to continue its accommodative money-market operations stance at least until the end of September, which should support short- term notes through declines in term rates,” said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo. “But as supply concerns loom, we recommend selling longer-dated debt.”
The Tokyo three-month interbank offered rate, or Tibor, a measure of the cost of lending between banks, fell to 0.645 percent today, compared with a decade-high of 0.922 percent on Dec. 16.
The BOJ boosted monthly purchases of government bonds to 1.8 trillion yen last month. It increased purchases to 1.4 trillion in December. The Japanese central bank also cut its policy rate to 0.1 percent in December.
“The BOJ commits itself to holding funding costs at nearly zero, which is likely to last for some time,” said Kenji Arata, a Tokyo-based economist at Informa Global Markets (Japan) Ltd. “This policy stance should prevent rises in bond yields.” |
