A bubble forming in the Japanese government bond market risks further expansion as central bank purchases shield the notes from a global rout, according to Bank of America Merrill Lynch and Mizuho Securities Co.
The strategist who predicted Japan’s 10-year bond yield would plunge to 0.5 percent now says it’s likely to reach a record 0.25 percent as a failure to meet economic targets may cost Prime Minister Shinzo Abe his job.
Japan’s 10-year bond yields will hold at 1 percent before returning to a 2003 low as Prime Minister Naoto Kan’s reelection eases concerns bond issuance will increase, according to Tokai Tokyo Securities Co.
Five-year Japanese bond yields are trading at an almost nine-month low as the yen approaches a post World War II record high, fueling speculation the Bank of Japan will expand stimulus this week to support the economy.
Naoto Kan , the front-runner to become Japan’s prime minister, has begun leading a drive to contain the world’s largest public debt just months after warning it would be a “challenge” to maintain fiscal discipline this year.
Analysts from the 24 primary dealers in the Japanese government bond market comment on Bank of Japan Governor Masaaki Shirakawa ’s performance, in addition to Japan’s struggle with deflation and the power and limitations of monetary policy.