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Japanese government bonds end morning lower as stocks continue rebound

Wednesday, January 23, 2008

TOKYO (Thomson Financial) - Japanese government bond prices ended the morning session lower Wednesday as the continued rebound on the stock market encouraged investors to lock in profits on the recent surge.

But the top-heaviness on the Tokyo stock market encouraged investors to buy bargain bonds, supporting the downside.

The benchmark Nikkei 225 Stock Average finished the morning up 184.86 yen or 1.4 percent at 13,013.92, off a high of 13,134.77.

"It is still difficult for us to see a fully-fledged upturn in the stock market," said Makoto Yamashita, a Lehman Brothers strategist.

"So we will continue to recommend buying bonds, as the correction is seen as a blip," he said.

Speculation about an interest rate cut in Japan is also keeping bond prices from falling too far.

There is an increasingly widespread view that the Bank of Japan is now open to the possibility of rate cuts in coordination with the US and euro-zone central banks in the event of another acceleration in the global equity slide, Barclays Capital Securities strategist Chorato Morita said in a note to clients.

At a press conference after the Bank of Japan decided unanimously Tuesday to keep interest rates unchanged, its governor, Toshihiko Fukui, failed to speak of the the need to adjust "interest rates gradually to coincide with the pace of improvement in the economy and prices" -- the expression he usually uses to indicate the need for higher interest rates.

But an actual rate cut is fairly unlikely, Lehman's Yamashita said.

"Unless the Japanese economy falls back into deflation, the credit crunch shakes the health of the financial system and the yen appreciates rapidly, the Bank of Japan is not likely to actually cut rates," Yamashita said.

At the end of the morning session the yield on the benchmark 10-year bond was 1.375 percent, up from 1.335 percent Wednesday.

The yield on the two-year note edged up to 0.505 percent from 0.495 percent and the yield on the five-year bond rose to 0.810 percent from 0.780 percent.

The yield on the 20-year bond was 2.075 percent, up from 2.040 percent, and the yield on the 30-year bond rose to 2.340 percent from 2.300 percent.

Bond prices move inversely to yields.

The price of the March futures contract for the 10-year bond slipped to 138.38 yen from 138.71 yen late Wednesday.

(1 US dollar = 106.37 yen)

Posted by MOHAMED SAID at 7:53 PM  


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