Japan's Bonds Gain as Stocks Slump, Demand Rises at Auction - BusinessWeek

October 04, 2011, 3:13 AM EDT By Mariko Ishikawa

Oct. 4 (Bloomberg) -- Japan’s bonds rose, driving down 30- year yields for the first time in seven days, as stocks fell, boosting demand for the relative safety of government debt.

Benchmark 10-year yields dropped from near a one-month high on concern Greece will default and Europe’s debt crisis will worsen. Bonds also advanced after today’s auction of 10-year debt drew the highest demand in three months and as Goldman Sachs Group Inc. cut its forecasts for Japan’s economic growth and yields for the securities.

“The bond market is reflecting risk aversion,” said Toru Suehiro, a market analyst in Tokyo at Mizuho Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “Because there isn’t a fundamental resolution to the European problem, we may see a cycle of optimism and pessimism continue which will disappoint investors. I think pessimism will prevail in the end.”

Thirty-year yields fell 1.5 basis points to 1.905 percent at 3:26 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 2 percent securities maturing in September 2041 rose 0.29 yen to 101.811 yen. Benchmark 10-year rates fell 2.5 basis points to 0.99 percent after touching 1.025 percent on Sept. 30, a four-week high.

Ten-year bond futures for December delivery advanced 0.27 to 142.54 at the 3 p.m. close of the Tokyo Stock Exchange. The Nikkei 225 Stock Average sank 1.1 percent.

Today’s sale of 10-year bonds drew bids valued at 6.3 trillion yen ($82.2 billion), or 3.15 times the amount sold. That was the highest ratio since July even after the coupon was set at 1 percent, the least since November 2010.

‘Slightly Stronger’

“The results for the 10-year auction were slightly stronger than expected,” said Reiko Tokukatsu, a senior fixed- income strategist at Barclays Capital Japan Ltd. “Bonds tend to find more buyers on dips because sentiment in financial markets has deteriorated” amid the worsening situation in Greece.

Goldman Sachs halved its forecast for Japan’s growth to 0.1 percent during the fiscal year ending March 2012 owing to a slowdown in the global economy. The company also cut its forecast for Japan’s 10-year yields to 1.1 percent in three months from 1.25 percent.

European finance ministers meeting in Luxembourg pushed back a decision on the release of Greece’s next loan installment until after Oct. 13. It was the second postponement of a decision originally slated for this meeting.

--With reporting by Masaki Kondo in Tokyo. Editors: Nate Hosoda, Rocky Swift

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Japan Stocks Drop as Europe Impasse Weighs on Banks, Exporters - BusinessWeek

Oct. 4 (Bloomberg) -- Japanese stocks fell, with the Nikkei 225 Stock Average dropping to its lowest level in a week, as discord among European policy makers fueled concern the region will fail to resolve its debt crisis, stalling global growth.

Mitsubishi UFJ Financial Group Inc., Japan's largest lender by market value, fell 3.8 percent, its steepest drop in over six months after financial shares plunged in New York. Mitsubishi Corp., Japan's biggest trading company, dropped 5.7 percent on lower commodity prices. Kawasaki Kisen Kaisha Ltd. tumbled 4.5 percent after the shipping line said it expects a loss because of slumping cargo rates.

The Nikkei 225 fell 1.1 percent to 8,456.12 at the 3 p.m. close of trading in Tokyo, its lowest close since Sept. 26. The measure tumbled 11 percent last quarter, its worst performance since the three months ended June 2010. The Topix lost 1.5 percent to 736.18 today, with about four shares falling for each that gained.

“If we don't get a resolution in Greece, we may see a disorderly default,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd. which oversees the equivalent of $68 billion in assets. “The politicians are all over the place. Stocks are pricing in a scenario where the financial crisis spreads in Europe, the U.S. economy worsens and it leads to a deterioration in the global economy.”

The Standard & Poor's 500 Index fell 2.9 percent yesterday, dropping to a one-year low, led by financial shares amid concern that Europe's debt crisis will spill over into the banking system. Futures on the S&P 500 climbed 0.6 percent today.

Greek Crisis

German Finance Minister Wolfgang Schaeuble yesterday opposed moves to further increase the scale of a euro-area rescue fund until three countries approve a previous upgrade. Slovakia, the Netherlands and Malta have yet to ratify an earlier decision to expand the European Financial Stability Facility to 440 billion euros ($584 billion).

Europe's financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and shoring up banks that the International Monetary Fund says face as much as 300 billion euros in credit risk.

Japanese lenders dropped. Mitsubishi UFJ Financial dropped 3.8 percent to 331 yen, its steepest decline since March 29. Sumitomo Mitsui Financial Group Inc., the country's second- largest bank by market value, dropped 1.5 percent to 2,114 yen.

Slower Global Growth

“The main thing that's driving down the market is Europe,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “There's this worry that Europe is going to implode and drag down the U.S. with it. It's not good for Asia.”

Goldman Sachs Group Inc. lowered its forecast for world growth to 3.5 percent next year from a previous outlook of 4.3 percent, citing Europe's deterioration. The U.S. also faces a 40 percent chance of a recession, the investment bank said.

More than $10 trillion was wiped from global equity markets last quarter. Benchmark measures for 36 out of 45 nations in the MSCI All-Country World Index posted declines of 20 percent or more from their peaks, meeting the common definition of a bear market, according to data compiled by Bloomberg. Besides the U.S., only two other developed markets -- the U.K. and New Zealand -- haven't dropped 20 percent or more from their most- recent highs.

Mitsubishi Corp.

Trading firms and commodity-related companies declined in Tokyo after oil and copper prices fell. Mitsubishi Corp., which gets about 43 percent of its revenue from commodities, slumped 5.7 percent to 1,429 yen, the biggest decline on the Nikkei 225. Smaller rival Mitsui & Co. lost 2.9 percent to 1,043 yen.

Crude oil tumbled 2 percent in New York yesterday to its lowest level in more than a year amid concern that slower growth will mean less fuel consumption. Copper futures for December delivery fell below $3 a pound to a 14-month low on signs that demand for industrial metals will wane.

Kawasaki Kisen dropped 4.5 percent to 148 yen after saying it expects a net loss of 30 billion yen in the fiscal year ending March 31 because of slumping shipping rates and a drop in the value of shares it owns. Japan's third-largest shipper by sales had forecast a profit of 2 billion yen.

Komatsu Ltd., the world's second-largest maker of construction and mining equipment, slumped 5.1 percent to 1,540 yen. Morgan Stanley MUFG Securities Co. lowered its target price on Komatsu to 2,900 yen from 3,400 yen, citing falling revenue from China.

Automakers, still affected by parts shortages stemming from Japan's March 11 earthquake disaster, declined after reporting falling sales in the U.S. Toyota Motor Corp. dropped 2.5 percent to 2,568 yen. The automaker said sales plunged 17 percent last month in the U.S., its largest market.

Honda Motor Co.'s U.S. sales slipped 8 percent, exceeding a 6.1 percent estimate by five analysts' in a Bloomberg survey. Shares of Honda lost 2.8 percent to 2,202 yen.

--With assistance from Yoshiaki Nohara and Toshiro Hasegawa in Tokyo. Editors: Jason Clenfield, Jim Powell.

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Japan Puts Cheapest Ever as Traders Seek Banking Haven: Options - BusinessWeek

Sept. 30 (Bloomberg) -- Japanese options are the cheapest ever compared with U.S. contracts as traders bet the Nikkei-225 Stock Average, which has the smallest financials weighting among the biggest nations, is a haven as shares fall globally.

Implied volatility, the key gauge of options prices, for three-month contracts on the iShares MSCI Japan Index exchange- traded fund is 5.69 points lower than the figure for the SPDR S&P 500 ETF Trust. That's an increase from 1.02 points on Aug. 29, according to data compiled by Bloomberg. The gap surged to a record 6.24 points on Sept. 22.

Investors are betting Japanese stocks have less risk after the Nikkei gained 1.1 percent since March 15, its low point following the nation's record earthquake and tsunami. The Standard & Poor's 500 Index fell 9.5 percent during the same period on concern the European debt crisis will curb global economic growth. Financial companies, which led declines in the U.S. gauge since this year's peak in April, make up more than 13 percent of the S&P 500 and 6.4 percent of Japan's Nikkei.

“It doesn't seem like Japan is on the radar much for potential problems,” Sean Heron, who manages options strategies at Glenmede Trust Co., said in a telephone interview yesterday. The Philadelphia-based firm oversees $20 billion. “The U.S. is not out of the woods yet with its problems and Japan's were earthquake-related and not ongoing. They're going to price it this way until the U.S. calms down or there's another big event in Asia.”

Peak After Quake

The Chicago Board Options Exchange Volatility Index, known as the VIX, has surged 119 percent in 2011, more than Japan's Nikkei Stock Average Volatility Index, which is up 88 percent. The VIX rose 11 percent to 42.96 today. It peaked this year at a two-year high of 48 on Aug. 8. The Nikkei volatility gauge added 0.1 percent to 35.36 today, down from 69.88 on March 15, following the earthquake. Europe's VStoxx Index, which measures the cost of protection against Euro Stoxx 50 Index losses, gained 5 percent to 46.68.

The Topix index slipped 0.2 percent to 761.17 today. The Nikkei 225 fell less than 0.1 percent to 8,700.29. For the week, the gauge gained 1.6 percent amid signs Europe's policy makers may resolve the region's debt-crisis.

U.S. financial stocks are moving in tandem with European bank stocks, the center of concern about a potential recession, more than Japanese counterparts. The 30-day correlation coefficient between the S&P 500 Financials Index and the banking group in the Stoxx Europe 600 Index has averaged 0.65 in 2011, according to data compiled by Bloomberg. The figure for European banks and Japan's Topix Banks Index is 0.25. Readings of 1 mean prices are moving in lockstep.

‘Relative Calm'

“The Japan index could be a port of relative calm,” Alec Levine, an equity derivatives strategist at Newedge Group SA in New York, said in a Sept. 27 telephone interview. The Asian nation is “less exposed to financial contagion than the S&P or the Euro Stoxx.”

Japan's companies wouldn't be insulated from a recession in Europe because the Asian country is a net exporter and would feel the effects of slowdowns elsewhere, Daniel Genter, who oversees about $3.7 billion as president of RNC Genter Capital Management in Los Angeles, said in a phone interview yesterday.

U.S. Treasury Secretary Timothy F. Geithner said last week at the annual meeting of the International Monetary Fund in Washington that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” Growth in the world economy will be slow and downside risks are “piling up,” IMF Managing Director Christine Lagarde said at a Sept. 23 meeting in Washington.

Japan ETF

The S&P 500 lost 15 percent from its April 29 high amid concern Europe can't contain its sovereign debt crisis and economic growth worldwide will slow. The S&P 500 Financials Index fell 25 percent, the most among 10 major groups. In Europe, the Stoxx 600 Banks Index sank 32 percent.

The Japan ETF, which trades in the U.S., has fallen 7.8 percent since April 29, and is down 11 percent this year. It tracks 310 companies including Toyota Motor Corp., Mitsubishi UFJ Financial Group Inc., Honda Motor Co. and Canon Inc., which have the four largest weightings. They make up 12 percent of the index.

“The options market is suggesting that Japan may not be so affected from the crisis in Europe,” Bhavin Patel, an equity- derivatives strategist at Royal Bank of Scotland Group Plc in London, said in a Sept. 27 telephone interview. “It had already sold off before, so when the crisis came, it wasn't so aggressive in terms of a selloff. Hence volatility has remained subdued relative to the U.S.”

‘Best Places'

The relative discount for Japan options means that investors have a cheaper alternative for buying protection against a plunge in global stocks if a Greek default roils markets, said Rohit Bhatia, a New York-based options strategist at Barclays Plc, the top-ranked equity-linked strategies team in Institutional Investor magazine's 2010 survey.

“Nikkei really stands up as one of the best places to buy puts,” Bhatia said in a Sept. 27 telephone interview. “If things turn really bad, you wouldn't expect anyone to escape, and in that sense low volatility means it's a good hedge if things take a turn like 2008.”

Three-month implied volatility for the Japan ETF is 28.49, or 5.69 points below the level for the S&P 500 fund. Since the Japanese security began trading in 2005, it has on average been priced 3.17 points higher than the U.S. fund, with spikes to 16.92 points in October 2008 and 16.65 points in March 2011.

“People are more afraid about what's going on here and in Europe than they are in Japan,” said Chicago-based Christopher Rich, head options strategist at JonesTrading Institutional Services LLC. “The volatility that we're having on a daily basis in the U.S. is an indication of the complete uncertainty.”

--With assistance from Whitney Kisling and Kaitlyn Kiernan in New York and Lynn Thomasson in Hong Kong. Editors: Joanna Ossinger, Nick Baker

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China, Japan Say Europe Must Find Its Own Fix for Debt Crisis - BusinessWeek

September 23, 2011, 12:20 AM EDT By Sho Chandra, Sara Eisen and Aki Ito

(See GMEET for more on the G-20 meeting.)

Sept. 23 (Bloomberg) -- Officials from China and Japan, the world’s second- and third-biggest economies, indicated that their support for Europe will have limits and the region needs to solve its own debt crisis.

Japanese Finance Jun Azumi said in Washington today that while his nation can buy European Financial Stability Facility bonds if needed, there is no blank check.

“At the margin we can do quite a bit to help,” Chinese central bank Deputy Governor Yi Gang said in a panel discussion yesterday at the International Monetary Fund in the same city. At the same time, “the real solution of the European sovereign debt crisis has to be done by Europeans themselves.”

Group of 20 finance chiefs today pledged coordinated efforts to tackle rising risks as Greece teeters on the brink of default and stocks plunge around the world. Weak growth, high unemployment, sovereign stresses and turbulence in financial markets are “renewed challenges facing the global economy,” the officials said.

Azumi said that euro-area nations had “said that this is a euro-area problem, and that the euro-area nations should be the ones to solve the problem.” “We don’t reject that view, we respect it,” he said.

While additional aid is “a possibility” if Europe succeeds in creating a system for dealing with crises, “it’s not like we’re going to provide a blank check,” Azumi told reporters.

Seeking China’s Help

Yi Gang’s remarks came amid investors’ expectations that China may help stabilize the euro region, after Italy this month followed Spain, Portugal and Greece in seeking investment from the world’s fastest-growing major economy. Chinese Premier Wen Jiabao, facing calls to widen support for indebted European countries, signaled this month developed nations should cut deficits and open markets rather than rely on China to bail out the world economy.

Also this month, other Chinese officials indicated the country is prepared to offer assistance. Zhang Xiaoqiang, vice chairman of China’s top economic planning agency, said the nation is willing to buy euro bonds from countries involved in the sovereign debt crisis “within its capacity.”

In the panel discussion yesterday, Yi said his nation’s involvement could be at the country level or with the European Union, and could also extend to cooperation with the IMF.

Odds of a Slump

“We’ve consistently invested in Europe,” Yi said. “We will continue to do so.” A unified and prosperous European economy and a stable euro are “good for the world,” he added.

It is unlikely that the global economy will slide into another slump, in part because “the whole world is still at a very low level” of activity, Yi said. “We have a very moderate recovery” following the financial crisis, which indicates global growth “won’t decrease too much,” he said.

“The probability of that is still rather limited,” Yi said, referring to a double-dip recession. With the right combination of policies, countries can manage the debt crisis and “we can still have moderate growth” in the global economy, he said.

One hurdle is that most nations are constrained in implementing further fiscal and monetary policy measures as they already used them to recover from the last slump, he said.

“Fiscal capacity is very limited,” and “monetary policy is already used pretty much to the limit” in terms of interest rates, quantitative easing and other tools in developed and developing nations, Yi said.

--With assistance from Paul Panckhurst in Beijing. Editors: Nerys Avery, Paul Panckhurst

To contact the reporters on this story: Sho Chandra in Washington at schandra1@bloomberg.net; Sara Eisen in New York at seisen2@bloomberg.net; Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Japan Stocks Rise as Germany, France Express Support for Greece - BusinessWeek

September 15, 2011, 3:34 AM EDT By Norie Kuboyama

Sept. 15 (Bloomberg) -- Japanese stocks advanced, with the Nikkei 225 Stock Average rising the most in a week, after German and French leaders said they are convinced Greece will remain in the euro zone and speculation grew that China may help the region’s most-indebted nations.

Kyocera Corp., an electronics maker that gets almost 20 percent of its sales in Europe, added 2.1 percent after the euro appreciated against the yen, boosting the exporter’s earnings outlook. Sumitomo Metal Industries Ltd., Japan’s No. 3 steelmaker, jumped 3.8 percent after Credit Suisse Group AG raised its stock price estimate. Elpida Memory Inc. paced chipmakers higher after saying it may shift some production overseas.

The Nikkei 225 advanced 1.8 percent to 8,668.86 at the 3 p.m. close in Tokyo, its biggest increase since Sept. 7. The broader Topix added 1.4 percent to 751.76, with more than five shares rising for each that fell.

“There was a concern that France and Germany would one- sidedly blame Greece and show no support, but the situation on Greece was not as bad as expected,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. ”Following the stronger euro, more companies sensitive to the euro on earnings will likely be bought.”

The Topix has fallen 16 percent this year amid concern U.S. growth is sputtering and Europe’s debt crisis will damage the banking system, damping demand in two of Japan’s biggest export markets.

Support For Greece

The Standard & Poor’s 500 Index advanced for a third day yesterday in New York, rising 1.4 percent. French President Nicolas Sarkozy and German Chancellor Angela Merkel are “convinced” Greece will remain in the euro area, according to a statement issued by Sarkozy after they spoke to Greek Prime Minister George Papandreou by telephone. Futures on the S&P 500 were little changed today.

China is willing to buy the bonds of nations hit by the debt crisis, Caijing reported on its website yesterday, citing Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission.

Japanese exporters to Europe gained after the region’s shared currency appreciated against the majority of its most- traded counterparts. The euro advanced to 105.29 yen at the close of stock trading today in Tokyo, compared with 104.83 yesterday.

‘Buying Trigger’

Kyocera added 2.1 percent to 6,750 yen. Ricoh Co., an office-equipment and camera maker that obtains almost a quarter of its revenue in Europe, climbed 2.2 percent to 662 yen.

The euro’s advanced was a “buying trigger,” said Seiichiro Iwamoto, who helps oversee about $35 billion in Tokyo at Mizuho Asset Management Co. “Many companies are hedging for the dollar, but not for the euro. So, the impact from the euro’s appreciation on earnings is big.”

Sumitomo Metal Industries advanced 3.8 percent to 166 yen after Credit Suisse raised its price target for the steelmaker to 230 yen from 220 yen, citing higher prices for the company’s seamless pipes. Nippon Steel Corp. gained 3.6 percent to 231 yen after Credit Suisse raised its profit outlook for Japan’s No. 1 steelmaker.

Elpida, the world’s third-largest memory chipmaker, jumped 5 percent to 564 yen after saying it may shift some production to Taiwan as part of plans to cope with a stronger yen and an industry slump. Elpida has lost 40 percent this year.

Chip-related companies also advanced after the Philadelphia Semiconductor Index, which tracks the performance of 30 industry stocks, rose yesterday for a third day to its highest level since Aug. 3. Dainippon Screen Manufacturing Co., a maker of chip-making equipment, soared 6 percent to 479 yen. Advantest Corp., the world’s biggest producer of chip testers, climbed 2.7 percent to 885 yen.

--With assistance from Toshiro Hasegawa in Tokyo. Editors: Jason Clenfield, John McCluskey.

To contact the reporters on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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Disappearing Yield Gap Challenges Azumi Yen Pledge: Japan Credit - BusinessWeek

September 13, 2011, 1:08 AM EDT By Monami Yui, Hiroko Komiya and Kazumi Miura

Sept. 13 (Bloomberg) -- Finance Minister Jun Azumi’s pledge to take “bold actions” on the yen may be put to the test after a rally in overseas bonds reduced their yield advantage over Japanese debt.

Yields on two-year U.S. securities fell to a 19-year low relative to similar-maturity Japanese notes, a gap that has a “relatively high” correlation with the dollar-yen rate, according to Bank of Japan Governor Masaaki Shirakawa. The spread between Japanese and German debt is the narrowest since at least 1990, as the euro plunged to the lowest level in a decade against the yen.

Gains in Japanese bonds have been outpaced by those in the U.S. and Germany amid speculation Greece will default and the Federal Reserve will signal plans to buy longer-dated debt at a meeting starting Sept. 20. Investor demand for a refuge has intensified since last month, when Japan’s biggest currency intervention in seven years failed to stop the yen from appreciating to a postwar record.

“It’s hard to draw a picture of how the yen could weaken unless international interest-rate spreads widen,” said Tomoko Fujii, a senior foreign-exchange strategist at Bank of America Merrill Lynch in Tokyo. “It’s also the fact that intervention may not be enough to change the trend.”

Azumi ended his first Group of Seven meeting this past weekend, saying he “gained an understanding” with his counterparts on a pledge to stem the advance in his nation’s currency.

‘Bold Actions’

“We will continue to closely monitor developments and we will take bold actions, especially against speculative trading,” Azumi said after G-7 finance chiefs met in Marseille, France. “No one was opposed to my explanation.”

The spread between two-year Japanese and Treasury yields shrank to 2.78 basis points on Sept. 9, the least since January 1992, when the difference reached minus 23 basis points. The gap was at 5.8 basis points today, compared with the 11 basis-point level on Aug. 4 when Japan intervened to weaken its currency for the third time in the past 12 months. It was above 60 basis points as recently as April.

The yield spread between Germany and Japan’s two-year notes shrank to 25 basis points Sept. 9, the narrowest in Bloomberg data going back to 1990, and down from 171 in May.

Damage to Exporters

Japanese data last week showed that gross domestic product contracted in the second quarter by more than the government estimated, highlighting the yen’s threat to an economy that’s still reeling from the effects of a record earthquake in March. A stronger currency reduces the value of overseas earnings at exporters when repatriated.

Shares of Toyota Motor Corp., the world’s biggest carmaker, have lost 18 percent this year compared with a 17 percent plunge in the benchmark Nikkei 225 Stock Average.

The yen’s gains cut Toyota’s first-quarter operating profit by 50 billion yen ($649 million), the company said last month. Every 1 yen gain against the dollar cuts Toyota’s operating profit by 34 billion yen, according to the company’s full-year outlook.

The rising yen boosted Japan’s overseas capital investment compared with similar spending inside the country, with the ratio climbing to 6.5 times in the fourth quarter, the highest level since the three months ended in September 2008. It was 6.3 times in the January-March period.

‘Way Out’

Bank of Japan board members expressed concern that currency gains may spur companies to move factories abroad, according to minutes released yesterday of the central bank’s Aug. 4 meeting.

“Should domestic demand decrease while the strong yen proceeds, it’s natural for Japanese companies to look to find a way out in the overseas market,” said Satoru Ogasawara, vice president of economics research in Tokyo at Credit Suisse Group AG. “Facing a global economic slowdown, Japan needs fiscal and monetary policies to avoid excessive gains in its currency.”

Japan sold 4.51 trillion yen on Aug. 4 to weaken the currency, the nation’s biggest currency-market intervention on a monthly basis since 2004. The yen went on to reach a postwar high of 75.95 per dollar on Aug. 19. The yen advanced at least 0.7 percent against all 16 of its major peers in the past week, and increased 2.5 percent, the best performer among 10 developed nation-currencies tracked by Bloomberg Correlation-Weighted Currency Indexes.

Treasuries have surged, with 10-year yields reaching a record low of 1.877 percent, amid speculation the U.S. central bank will embark on more easing as early as this month.

Europe’s Debt Woes

Fed officials gather for a two-day meeting on Sept. 20 that was extended from the one day originally scheduled to “allow a fuller discussion” of the economy and the central bank’s possible policy response.

Japan’s 10-year yield was unchanged at 0.995 percent today, above its low on the year of 0.97 percent on Aug. 19.

Concern that European policy makers may fail to contain the region’s debt crisis also increased demand for the yen as a haven, driving the currency yesterday to the strongest since June 2001 against the 17-nation euro.

Officials in German Chancellor Angela Merkel’s government are debating how to shore up the nation’s banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said on Sept. 9. Lars Feld, a German government adviser, said on Bloomberg Television yesterday that the July decisions taken by European leaders “won’t suffice” to save Greece from default.

‘Downside Risks’

European Central Bank President Jean-Claude Trichet said last week “downside risks” to the region’s economy have intensified, sparking speculation the central bank may lower rates after boosting them two times this year to 1.5 percent.

Credit-default swaps insuring Japan’s sovereign debt for five years traded at 35.5 basis points more than Germany’s on Sept. 12, compared with this year’s high of 72.5 basis points on March 16, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Japan’s central bank kept its benchmark interest rate at a range of between zero and 0.1 percent on Sept. 6. It also left unchanged a 15 trillion-yen asset-purchase program that buys government bonds, corporate debt and stock funds.

“The BOJ will probably announce some measures to combat gains in yen at its meeting in October,” said Akito Fukunaga, chief rates strategist at the brokerage unit of Royal Bank of Scotland Plc in Tokyo. “Given there is little room for Japan’s short-term yield to fall, it’s impossible to widen the gaps against U.S. and German debt. A strong yen is inevitable in the long run.”

--Editors: Rocky Swift, Jonathan Annells.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net; Kazumi Miura in Tokyo at kmiura1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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Japan economy shrank more than initial report - BusinessWeek

By YURI KAGEYAMA

TOKYO

Japan's economy contracted in the April-June quarter at an annual rate of 2.1 percent, worse than the initial estimate, the government said Friday, underlining the damage from the March earthquake disaster.

The Cabinet Office numbers give a more dismal view than the earlier report that had said Japan's gross domestic product, or the measure of a nation's goods and services, contracted at an annual rate of 1.3 percent.

The world's third-largest economy has struggled ever since the March 11 tsunami and earthquake, which left 20,000 people missing or dead, disrupted supply chains among the small-business suppliers in the northeast and forced companies to cut back on power usage because of a nuclear power plant that went into meltdown.

The government said capital expenditure during the three months through June contracted 0.9 percent annual rate. The preliminary report had said it had risen 0.2 percent.

Satoshi Osanai, economist at Daiwa Institute of Research in Tokyo, said the revisions were within expectations, and the consensus view among analysts is that the economy will bounce back in months ahead.

"These negative results reflect the one-time disaster, and so we still think conditions are turning better in a recovery," he said. "This is not going to be like Lehman shock when things kept getting worse."

Government stimulus spending, designed to help along recovery efforts in northeastern Japan, is likely to combine with growth in the private sector, including consumer spending, to show expansion in the next quarter economic data, Osanai said.

The disaster hit at a time when Japan's economy had been stagnating for more than a decade, its public debt ballooning, and the nation had been struggling to find a turnaround.

Exports, corporate investment and consumer spending have all been falling in recent months.

Even as companies restore production, a surging yen, which has recently tested record highs against the dollar, is a major problem for Japan's exporters. It reduces the value of their foreign earnings and makes Japanese goods more expensive in overseas markets.

Japan lost its place as the world's No. 2 economy to China last year. It has faced a slew of problems including years of deflation and a rapidly aging and shrinking population.

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Japan's lower house elects Noda new prime minister - BusinessWeek

TOKYO

Japan's lower house has elected former Finance Minister Yoshihiko Noda as the country's new prime minister.

The less powerful upper house, controlled by the opposition, still needs to vote. If it rejects Noda, the lower house will vote again, where Noda is virtually assured of winning again. The vote took place Tuesday.

Noda, seen as a fiscal conservative, will face a host of daunting problems, including the post-tsunami recovery, nuclear crisis, sluggish economy and yen's surge.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

TOKYO (AP) -- Japan's prime minister and his Cabinet resigned en masse on Tuesday ahead of a vote in parliament to install former Finance Minister Yoshihiko Noda as the country's new leader.

Noda, seen as a fiscal conservative, will face a host of daunting problems, including how to fund the recovery from Japan's devastating March 11 earthquake and tsunami, the ongoing nuclear crisis touched off by the disaster, and the rapid strengthening of the nation's currency on international markets.

Noda was elected Monday to head the ruling Democratic Party of Japan, virtually insuring that he would be named prime minister in the parliament vote expected later Tuesday. He succeeds the unpopular Naoto Kan, who quit after 15 months in office.

He must seek to unify the fractious ruling party and restore public confidence in politics amid widespread disgust over squabbling in parliament and perceived lack of leadership in the wake of the triple disaster.

Noda is a "moderate voice" in the ruling party, Sheila Smith, a senior fellow at the Council on Foreign Relations in Washington, wrote in a comment. "He has a steady temperament and a reputation for fairness in a party where loyalties have been severely tested of late."

On Monday, Noda defeated Trade Minister Banri Kaieda -- who was backed by an influential party powerbroker -- in a run-off election 215-177 among ruling party members of parliament after none of the initial five candidates won a majority in the first round.

After the vote Noda, 54, called for party members to put aside differences and "sweat together for the sake of the people."

He will become Japan's sixth prime minister in five years. The last five have each lasted about a year.

Noda supports free trade and building a stronger partnership with the United States, but given the pressing needs at home, "diplomacy is not likely to be at the top of his priority lists," Smith wrote.

Noda has angered China and South Korea for comments about convicted wartime leaders revered at the Yasukuni Shrine in Tokyo, where the souls of all Japan's war dead are enshrined. Earlier this month, he reiterated his claim that the wartime leaders had paid their debts and should no longer be seen as war criminals. He made similar comments in 2005.

Yasukuni visits by postwar politicians have often enraged Japan's neighbors, who bore the brunt of Japan's colonial aggression and are sensitive to any efforts by Japan to whitewash its past. Noda made his comments in response to a reporter's question on the Aug. 15 anniversary of Japan's World War II surrender. He and the rest of Prime Minister Naoto Kan's Cabinet chose not to visit the shrine this year.

China's official news agency warned Noda on Monday to not to ignore Beijing's "core interests" or seek to portray it as a threat to regional peace and stability. In a harshly worded editorial, Xinhua demanded Noda not visit Yasukuni and said Tokyo must recognize China's claim over Japanese-controlled islands known as Senkaku, or Diaoyutai in Chinese.

The two countries got into a spat last year when a Chinese fishing boat captain was arrested -- and later released -- by Japan after his boat sailed close to the islands.

Noda will likely be preoccupied with tackling the huge tasks at home. Nearly six months after the quake-spawned tsunami devastated Japan's northeastern coast, dozens of towns are still cleaning up and struggling to come up with reconstruction plans. The nuclear plant in Fukushima has displaced about 100,000 people, and the quake-prone country is also striving to hammer out a clear stance on the future of nuclear power generation.

Japan's economy, the world's third-largest, has been sluggish for the last 20 years and its population is aging, putting a greater tax burden on the younger generation.

As finance minister, Noda has been battling the yen's recent rise to record highs against the dollar, which hurts Japan's exporters. Earlier this month, he authorized Japan's intervention in global currency markets to try to weaken the yen.

Noda has also said Japan must rein in its huge deficit -- twice the country's gross domestic product -- and has voiced support in the past for raising the country's 5 percent sales tax, but has toned that down lately.

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Associated Press writer Eric Talmadge contributed to this report.

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Solar companies get boost from Japan - BusinessWeek

NEW YORK

Solar panel makers could get a lift this year thanks to new renewable energy laws in Japan, Jefferies & Co. said Friday.

A renewable energy bill will include a feed-in tariff that pays homeowners for the power they generate from solar panels, analyst Jesse Pichel said. The bill, which will become effective on July 1, 2012, could increase solar installations in the country more than five-fold by 2020, Pichel said.

"Although economic details are pending, we believe solar will be the largest beneficiary of the bill given Japan's history as the first country to adopt solar as a viable energy source," Pichel said.

Japan this summer said that the risks of nuclear energy were clearly too high after a March 11 earthquake and tsunami touched off leaks, explosions and meltdowns at the Fukushima Dai-ichi nuclear plant northeast of Tokyo.

National leader said that renewable energy sources such as solar, wind and biomass should eventually replace nuclear as a new pillar of energy supply.

Japanese companies such as Kyocera Corp. and Sharp Corp. are expected to benefit, as well as companies that do a lot of business in the country such as Suntech Power Holdings Co. and Canadian Solar Inc. In addition, the new Japanese incentives will tighten global supplies for solar panels and likely raise prices for the entire industry, Pichel said.

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Commodities fall on worries about future demand - BusinessWeek

By SANDY SHORE

Commodity prices fell Thursday after fresh economic reports added to concerns about a weak global economy. Gold was a notable exception as it hit a new record near $1,830 an ounce.

U.S. economic news was discouraging: consumer prices and claims for jobless benefits rose, existing home sales fell and manufacturing weakened in the mid-Atlantic region. Overseas, Japan's exports fell for the fifth straight month in July and European leaders continued to grapple with sovereign debt problems.

Investors sold contracts for everything from oil to wheat and industrial metals as they worried about the potential for future demand if the global economy continues to slow.

Kingsview Financial analyst Matt Zeman said debt issues are key concerns for investors. "Add to that these just extremely weak economic numbers that we're seeing and it spells trouble and that's what we're seeing," he said.

The government said the number of people applying for unemployment benefits rose last week. The Consumer Price Index increased 0.5 percent in July as Americans paid more for necessities like fuel and food.

Gold prices rose for a fourth day. The precious metal is considered a relatively stable asset during economic turmoil. Gold for December delivery rose $28.20 to finish at $1,822 an ounce after hitting $1,829.70 an ounce earlier in the day. That was a record in dollar terms but still below the 1980 peak after adjusting for inflation.

Several analysts have predicted that gold could reach $2,000 an ounce if economic troubles deepen.

Gold's increase benefited silver and platinum, which are traded both as precious and industrial metals.

September silver rose 33.7 cents to end at $40.688 an ounce and October platinum increased $6.90 to $1,847.70 an ounce.

In other trading, September copper fell 6.6 cents to finish at $3.966 a pound and September palladium fell $18.90 to $757 an ounce.

Oil and other energy products dropped. Benchmark West Texas Intermediate crude for September delivery declined $5.20, or 5.9 percent, to finish at $82.38 per barrel on the New York Mercantile Exchange.

In other Nymex trading for September contracts, heating oil fell 8.68 cents to end at $2.8748 per gallon, gasoline futures lost 8.71 cents at $2.7832 per gallon and natural gas fell 4.1 cents to $3.892 per 1,000 cubic feet.

Wheat for September delivery fell 19.75 cents to $7.0775 a bushel, December corn lost 12.5 cents at $7.13 a bushel and November soybeans fell 5.75 cents to $13.61 a bushel.

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Qantas Announces Asia, Japan Carriers on International Losses - BusinessWeek

August 15, 2011, 8:36 PM EDT By Robert Fenner

Aug. 16 (Bloomberg) -- Qantas Airways Ltd., Australia’s biggest airline, will create a full-service carrier in Asia and a budget unit in Japan as it seeks to turn around A$200 million ($210 million) in annual losses at its international unit.

The Asian-based carrier will have a different name and appearance than existing brands, while its budget unit is teaming with Japan Airlines Co. and Mitsubishi Corp. to start Jetstar Japan by the end of 2012, Sydney-based Qantas said in a statement today. The company will cut about 1,000 jobs.

Qantas will revamp its fleet plans for the new structure and order as many as 110 Airbus SAS A320 jets, including 78 fuel-efficient “neo” versions. Chief Executive Officer Alan Joyce is revamping his international operations amid a slump in market share as travelers switch to premium rivals including Singapore Airlines Ltd. and Dubai-based Emirates Airline.

Qantas rose as much as 4.3 percent in Sydney trading, the biggest intraday gain in a month. It was up 2.6 percent at A$1.57 at 10:10 a.m.

The Australian carrier also said today it will delay delivery of its final six A380 superjumbos for as long as six years, leaving it with 12 of the double-deck planes by the end of 2011.

The airline will also switch its South American direct services to Santiago from Buenos Aires, increase flights via Singapore through a venture with British Airways and further develop flights with AMR Corp.’s American Airlines unit though Dallas/Fort Worth.

--Editor: Dave McCombs, Neil Denslow

To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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