Japanese Bond Prices Fall as Investors Buy Stocks

Investors dumped Japanese government bonds again early today, extending the market’s losing streak to seven straight sessions and sending yields to their highest levels in more than a year.

At the same time, Japanese stock prices rallied for the eighth time in nine sessions.

The action in the two markets suggests that optimism about the long-suffering Japanese economy is growing: Investors are less willing to hold low-yielding bonds and are more willing to take a chance on stocks.

Weak demand at a government auction of 20-year bonds Tuesday helped spur the sell-off today. The yield on the benchmark 10-year bond was at 1.41% at midday, up from 1.38% on Tuesday and 0.94% a week ago.

By contrast, the Nikkei-225 stock index was up 87.67 points, or 0.9%, to 10,261.77 at midday. The Nikkei is at its highest level in 13 months.

“We are consistently seeing positive economic figures, especially from the U.S., fueling a rally in stocks and pushing up bond yields,” said Susumu Kato, chief fixed-income strategist in Tokyo at Lehman Bros. Japan Inc., one of 24 banks that advise the Ministry of Finance on bond sales.

The Nikkei index is up nearly 20% year to date, compared with a 13.9% gain in the U.S. Standard & Poor’s 500 index.

Still, some analysts said Japanese government bond yields were getting more attractive, given the economy’s continuing deflation woes.

“The economy isn’t gaining enough steam to halt deflation,” said Naka Matsuzawa, chief strategist at Nomura Securities.