“The tendency of Japan’s long-term yields to gain in the April-June period will remain intact this year,” said Hajime Takata, Tokyo-based chief strategist at Mizuho. “It wouldn’t be surprising if the yields rose above 1.6 percent.”
The yield on Japan’s 10-year notes rose in the second quarter of each of the past six fiscal years, according to data compiled by Bloomberg. The rate peaked between April and June in all those periods except for fiscal 2005. In the current year ending on March 31, the yield reached a high of 1.56 percent on June 11.
The U.S. outlook is the main factor driving the seasonal pattern, Takata said. Inflation expectations and recovery optimism in the world’s largest economy have tended to heighten in the second quarter of each year since 2004, prompting Japan’s yields to gain amid speculation the Federal Reserve would tighten monetary policy, he said.
Japan’s 10-year bonds headed for a fourth weekly loss, pushing up the yield to 1.38 percent as of 11:15 a.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The U.S. 10-year Treasury yield was at 3.86 percent, near to the highest since June 11, according to data compiled by Bloomberg.
Recent economic indicators signal a recovery is taking hold in the U.S., aiding a rally in stocks that will likely help to improve investor sentiment, Takata said.
“From April, the speculation about tightening will push up U.S. two-year yields and 10-year yields will likely rise above the key 4 percent level,” he said.
Still, the Fed probably will delay interest-rate increases until next year or 2012, Takata said.
“It’s highly likely U.S. yields will reverse to a decline from the summer as they did in the past few years,” he said. “Japan’s long-term yields will move in a range below 1.5 percent after temporary gains.”
