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 machinery orders slump, signal weak investment

TOKYO (Reuters) – Japan's core machinery orders tumbled in July at twice the pace economists' had expected in a sign that companies are delaying investment due to worries about a strong yen, slackening global growth and slow progress in reconstruction from the March earthquake.

The current account surplus fell more in the year to July than the median estimate as exports weakened, highlighting concerns that a strong yen and a stuttering global economy could hamper Japan's recovery from the post-quake slump.

The disappointing data could place some pressure on the government and the Bank of Japan, which highlighted risks to growth after leaving monetary policy on hold on Wednesday, to ensure that the yen doesn't strengthen further.

The yen has been attracting safe-haven demand from investors unsettled by Europe's sovereign debt crisis and signs of U.S. economic slowdown even as Japan struggles with its own debt burden and its new government faces a long battle to gain consensus over how to fund reconstruction from the March 11 earthquake and tsunami.

"Uncertainty on overseas economies started to increase in July, which may have prompted some corporations to rein in their capital spending on lower expectations for business growth," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo.

"At the moment, there is little possibility that the economy will stall, as there will be more demand from post-quake reconstruction, but there is also a possibility that the debt problem in Europe may turn into a financial crisis."

Core machinery orders fell 8.2 percent in July from the previous month due to declines in orders from manufacturers and service sector firms, Cabinet Office data showed on Thursday. That compared with a median market forecast for a 4.1 percent decline and follows a 7.7 percent rise in June.

Compared with a year earlier, core orders increased 4.0 percent in June, much less than an 8.5 percent rise expected by economists.

"Capital spending remains on a recovery trend, although the overseas slowdown and a possible delay in Japan's post-quake reconstruction are a concern," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Japan's current account surplus fell 42.4 percent in July from a year earlier, Ministry of Finance data showed, more than a median forecast for a 31.3 percent decline. The surplus stood at 990.2 billion yen ($12.8 billion), against a median forecast for a 1.18 trillion yen surplus.

Japanese policymakers and private-sector economists expect Japan's economy will recover in the latter half of the current fiscal year that ends in March, counting on export growth and post-quake reconstruction demand.

Risks to this scenario are growing due to signs of a global economic slowdown and worries about a delay in legislation needed to fund reconstruction spending.

Japan is on guard against further yen appreciation after intervening in currency markets last month when its currency approached a record high versus the dollar.

Japan's economy probably shrank at a faster annualized pace in the second quarter than the government's initial estimate as corporate spending fell at a quicker rate due to the strong yen and a slowdown in the global economy, a Reuters poll showed before the release of the data on Friday. ($1 = 77.325 Japanese Yen)

(Editing by Tomasz Janowski)

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Japan machinery orders slump, signal weak investment (Reuters)

TOKYO (Reuters) – Japan's core machinery orders tumbled in July at twice the pace economists' had expected in a sign that companies are delaying investment due to worries about a strong yen, slackening global growth and slow progress in reconstruction from the March earthquake.

The current account surplus fell more in the year to July than the median estimate as exports weakened, highlighting concerns that a strong yen and a stuttering global economy could hamper Japan's recovery from the post-quake slump.

The disappointing data could place some pressure on the government and the Bank of Japan, which highlighted risks to growth after leaving monetary policy on hold on Wednesday, to ensure that the yen doesn't strengthen further.

The yen has been attracting safe-haven demand from investors unsettled by Europe's sovereign debt crisis and signs of U.S. economic slowdown even as Japan struggles with its own debt burden and its new government faces a long battle to gain consensus over how to fund reconstruction from the March 11 earthquake and tsunami.

"Uncertainty on overseas economies started to increase in July, which may have prompted some corporations to rein in their capital spending on lower expectations for business growth," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo.

"At the moment, there is little possibility that the economy will stall, as there will be more demand from post-quake reconstruction, but there is also a possibility that the debt problem in Europe may turn into a financial crisis."

Core machinery orders fell 8.2 percent in July from the previous month due to declines in orders from manufacturers and service sector firms, Cabinet Office data showed on Thursday. That compared with a median market forecast for a 4.1 percent decline and follows a 7.7 percent rise in June.

Compared with a year earlier, core orders increased 4.0 percent in June, much less than an 8.5 percent rise expected by economists.

"Capital spending remains on a recovery trend, although the overseas slowdown and a possible delay in Japan's post-quake reconstruction are a concern," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Japan's current account surplus fell 42.4 percent in July from a year earlier, Ministry of Finance data showed, more than a median forecast for a 31.3 percent decline. The surplus stood at 990.2 billion yen ($12.8 billion), against a median forecast for a 1.18 trillion yen surplus.

Japanese policymakers and private-sector economists expect Japan's economy will recover in the latter half of the current fiscal year that ends in March, counting on export growth and post-quake reconstruction demand.

Risks to this scenario are growing due to signs of a global economic slowdown and worries about a delay in legislation needed to fund reconstruction spending.

Japan is on guard against further yen appreciation after intervening in currency markets last month when its currency approached a record high versus the dollar.

Japan's economy probably shrank at a faster annualized pace in the second quarter than the government's initial estimate as corporate spending fell at a quicker rate due to the strong yen and a slowdown in the global economy, a Reuters poll showed before the release of the data on Friday. ($1 = 77.325 Japanese Yen)

(Editing by Tomasz Janowski)

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Yield Curve Signals Japan-Style Slump in U.S., MKM's Darda Says: Tom Keene - Bloomberg

The Treasury yield curve’s flattening indicates the U.S. is on the cusp of a recession similar to what afflicted Japan in the late 1990s, according to MKM Partners LLC’s Michael Darda.

The extra yield investors get to hold U.S. 10-year notes instead of two-year debt shrank today to 1.91 percentage points, the narrowest since April 2009. Japan slipped into a recession during the second half of 1997, when the spread between its 10- and two-year government bonds collapsed below 1.75 percentage points, according to Darda, chief economist at the research and trading firm, during a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

“This Treasury market looks like Japan, and it is not a bullish signal in any way, and the stock market’s obviously confirming that,” said Darda, 37, based in Stamford, Connecticut. “At least for now this Treasury market is saying deflationary recession is the real risk.”

U.S. government debt yields are poised to converge with Japan’s for the first time in almost two decades. The extra yield investors get to hold two-year American notes instead of Japanese debt has shrunk to 0.04 percentage point, the narrowest since the spread contracted two days ago to a record low 0.03 percentage point, the lowest on a closing basis in data beginning in 1992.

Yields on U.S. 10-year notes fell today below 2 percent for the first time on the prospects of a slowing global economy, touching 1.97 percent. Two-year note yields were unchanged at 0.19 percent. Japan’s two-year yield slid to 0.15 percent, while its 10-year yield fell to 1 percent.

U.S. Inflation

Consumer prices excluding food and energy increased 0.2 percent last month, the lowest since April, and first-time jobless claims climbed last week the most in a month, the Labor Department reported.

The Philadelphia Fed’s general economic index indicated manufacturing in eastern Pennsylvania, southern New Jersey and Delaware unexpectedly contracted in August by the most in more than two years.

“Some people associate low and falling rates with easy money,” Darda said. “This collapse in Treasury yields, in my view, is signaling much weaker nominal growth expectations ahead.”

To contact the reporters for this story: Joe Ragazzo in New York at jragazzo@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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