Japanese govt bonds end morning mixed after stocks rally on US rate cut hopes

Japanese govt bonds end morning mixed after stocks rally on US rate cut hopes

	Published : Thu, 22 Mar 2007 04:16 By : Agencies Print this Story

TOKYO (XFN-ASIA) - Japanese government bond prices finished the morning session mixed, as the impact on the debt market of fresh hopes for further rate cuts in the US was offset by a strong rally in stocks, dealers said.

They said investors were also awaiting the release later today of the annual survey on land prices, with the outcome widely expected to show the first rise in 16 years for nationwide land prices. If so, it would be the strongest evidence yet that Japan has clearly emerged from deflation, they said.

At the break, the yield on the benchmark 10-year bond was at 1.560 pct, unchanged from Monday's close.

Financial markets here were closed yesterday due to a public holiday.

The yield on the two-year note was at 0.790 pct, up from 0.785 pct, while the yield on the lead five-year note was flat at 1.135 pct.

The bellwether 20-year bond was at 2.020 pct, down from 2.030 pct.

There was no successful trading in the 30-year bond, which finished Monday at 2.260 pct.

Bond prices move inversely to yields.

The price of the 10-year bond futures contract edged down to 134.78 yen from 134.81 yen in late trading Monday.

In the statement accompanying its decision to leave short-term interest rates unchanged at 5.25 pct, the Federal Reserve did not refer to the possibility of 'additional firming' of rates as it did in January.

The Fed said 'future policy adjustments' will depend on inflation and growth -- more neutral language that the market interpreted as opening the way for a possible rate cut -- although it indicated that it remains vigilant about the threat of inflation.

'Expectations for a possible rate cut in the US can also weaken the view in the market for further rate increases in Japan,' Lehman Brothers strategist Makoto Yamashita said.

'On the other hand, if the market comes to conclude that a rate cut can minimize the risk of a hard-landing of the US economy, such a view can also fuel a stronger momentum for the stock market, thereby limiting declines in the yields (of bonds),' he said.

Dealers said the outcome of the latest survey on land prices was being keenly awaited because it could affect the direction of Japanese interest rates.

'If the annual survey on land prices confirms a bottoming out of the prolonged downtrend, it will prompt the Bank of Japan to consider continuing to hike interest rates,' NLI Research Institute senior economist Taro Saito said.

(1 usd = 117.55 yen)

yasuhiko.seki@xfn.com