Tokyo: Japan's 10-year bonds made their first monthly gain since November as a government report showed consumer prices dropped for an 11th month, adding to signs deflation is deepening.
Bond futures touched the highest level this year as the report fuelled speculation the central bank will keep interest rates near zero, helping to enhance the attraction of the fixed payments from debt. Benchmark bonds ended three days of gains on Friday as an advance in stocks damped demand for the relative safety of government debt.
"Japan is plagued by stubborn deflation and an end to it is nowhere near," said Yasunari Ueno, chief market economist in Tokyo at Mizuho Securities Co, a unit of Japan's second-largest bank. "Bond yields will continue to decline."
The yield of the 1.3 per cent bond due December 2019 fell 1.5 basis points this month to 1.30 per cent at Japan Bond Trading Co, the nation's largest interdealer debt broker. The price gained 0.132 yen to 100 yen (Dh4.1) The yield climbed half a basis point on Friday.
Futures
Ten-year bond futures for March delivery gained 0.36 this month to 139.87 at the Tokyo Stock Exchange. The contracts rose as high as 140.05 on Friday, the most since December 22.
Bonds also completed a weekly gain, pushing yields down three basis points, after the statistics bureau said on Friday that consumer prices excluding fresh food slid 1.3 per cent in January from a year earlier, matching the decline in the previous month.
Bank of Japan Deputy Governor Hirohide Yamaguchi said last week that prices may not be improving as quickly as he had expected. Finance Minister Naoto Kan on Friday reiterated that the central bank should help the government beat deflation.
Japanese bonds handed investors a return of 0.1 per cent this month in local currency terms, according to indexes from Bank of America Corp's Merrill Lynch unit.
