12 Nov 2009
Nov. 12 (Bloomberg) -- Japanese and U.S. government bonds rose after central bank officials signaled inflation doesn't pose a threat and Japan reported a 10th month of declines in producer prices. Asian stocks pared an early advance.Japan's benchmark 10-year bond yield declined five basis points to 1.38 percent as costs companies pay for energy and unfinished goods tumbled 6.7 percent from a year earlier in October. The rate on similar maturity U.S. Treasuries fell four basis points to 3.45 percent after Federal Reserve presidents including Janet Yellen and Richard Fisher indicated in the last two days near zero interest rates will be maintained.
Gold surged as much as 0.4 percent to a record $1,122 as the dollar weakened and investor Marc Faber said the price won't fall below $1,000 again. The MSCI Asia Pacific Index slipped 0.3 percent to 118.45, ending a four-day rally of 3.6 percent.
"Prolonged deflation means that the Bank of Japan can't possibly start hiking interest rates anytime soon," said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Ltd. "This will give financial institutions with excess cash the confidence to buy government debt."
South Korea's central bank left interest rates on hold for a ninth month at 2 percent today to underpin growth. Bank of England Governor Mervyn King said yesterday he has an "open mind" on further bond purchases, a signal officials aren't ready to withdraw stimulus yet. The Fed cut its target for overnight loans to a range of zero to 0.25 percent in December and reiterated a pledge to keep borrowing costs at a record low for an "extended period" last week.
‘Home-made' Deflation
Japan's producer prices "have moved into a new phase of ‘home-made' deflation linked to a lack of domestic demand," said Kyohei Morita, chief economist at Barclays Capital in Tokyo. "Deflation may become less speedy but could also become more sticky."
The Bank of Japan last month forecast that both wholesale and consumer prices will continue to fall through the year ending March 2012, which would mark the third year of declines.
Most Asian stocks fell as losses in Japanese drugmakers countered advances among mining companies and automakers.
Hisamitsu Pharmaceutical Co. and Tsumura & Co. sank more than 7 percent in Tokyo after the Yomiuri newspaper said a government committee advised cutting drug prices to trim medical expenses. Rio Tinto Group, the world's No. 3 mining company, climbed 1.5 percent in Sydney as metals prices advanced. Honda Motor Co., Japan's second-biggest carmaker, jumped 2.1 percent after Goldman Sachs Group Inc. recommended buying the stock.
Recovery Concerns
"Concerns about whether the recovery is sustainable or not are weighing on shares," said Hiroshi Morikawa, a senior strategist in Tokyo at MU Investments Co., which manages the equivalent of $14 billion.
Japan's Nikkei 225 Stock Average fell 0.8 percent to 9,793.62 in Tokyo. Australia's S&P/ASX 200 Index lost 0.2 percent even as the government reported an unexpected increase in jobs last month. The Kospi Index dropped 0.2 percent in South Korea, where the nation's central bank left its benchmark interest rate at a record low. Futures on the Standard & Poor's 500 Index slipped 0.4 percent.
China's Shanghai Composite Index advanced 0.5 percent, while the Hang Seng Index in Hong Kong fell 0.4 percent. The Hang Seng earlier rallied to a level of 100 percent above its low this year on March 9.
China Growth
"We think growth in China will accelerate, inflation will be at an early stage, and policies will remain accommodative with few interest-rate hikes in 2010" Morgan Stanley analysts led by Jerry Lou wrote in a report. "A combination of early stage inflation and high growth is positive for equities pricing, and we believe this will be the case for 2010."
China's economic growth in the second half of this year will exceed 9 percent, Yu Bin, director of the macroeconomic research department of the State Council's Development Research Center, said today.
Gold for immediate delivery rose as much as 0.4 percent to $1,122 an ounce, surpassing yesterday's peak of $1,118.88. On an inflation-adjusted basis using the U.S. Labor Department's calculator, gold needs to rise above $2,287 to exceed its 1980 peak.
$1,000 Never Again
"We will not see less than the $1,000 level again," Marc Faber said at a conference in London. "Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold."
Newcrest rose 1.4 percent to A$35.82. Zijin Mining Group Co., China's largest gold producer, added 0.7 percent to 9.79 yuan. Sumitomo Metal Mining Co., Japan's biggest gold producer, rose 1 percent to 1,534 yen.
The Dollar Index, which measures the greenback against a basket of six currencies, lost 0.2 percent to the lowest since Aug. 7, 2008. U.S. Treasury Secretary Timothy Geithner said in a Wall Street Journal column today with the finance ministers of Indonesia and Singapore that Asia-Pacific nations need "market- oriented" currencies that are in line with their economic fundamentals to encourage new sources of growth.
The Australian dollar advanced to as high as 93.70 U.S. cents, a level not seen since August 2008, as the number of employed unexpectedly increased last month. New Zealand's currency appreciated to as much as 74.42 U.S. cents as a report showed retail sales unexpectedly rose last quarter and Finance Minister Bill English said the country can afford to start withdrawing stimulus because the economy is in "better shape."
With assistance by Bob Chen in Hong Kong, Zijing Wu in London, Haslinda Amin in Singapore, Akiko Ikeda in Tokyo.
