Japan bonds advance asextra budget avoids new debt issuance

TOKYO, April 23 (Bloomberg): Japanese government bonds rose the most since October after Prime Minister Naoto Kan's administration compiled a 4-trillion yen ($49 billion) extra budget that didn't include new debt issuance. Benchmark 10-year yields slid to a four-week low on prospects the first spending package for rebuilding from last month's record earthquake won't add to the nation's debt burden, the world's largest. Bonds gained for a second week after Economy and Fiscal Policy Minister Kaoru Yosano said on April 20 that taxes must be used to help fund the recovery. "People are finding it favourable that policy makers are at least talking about a tax increase and trying to respect" fiscal discipline, said Shinichi Horikawa, who helps manage the equivalent of $12 billion at Mitsui Sumitomo Kirameki Life Insurance Co. "Investors are inclined to buy toward month- end." The yield on the 1.3 per cent bond due March 2021 fell 7.5 basis points to 1.21 per cent this week as of 4:17pm in Tokyo yesterday at Japan Bond Trading Co, the nation's largest interdealer debt broker. That's the biggest drop since the week ended on Oct 8. The price rose 0.664 yen to 100.795 yen. Ten-year yields were at the lowest level since March 25. A basis point is 0.01 percentage point. Ten-year bond futures for June delivery rose 0.65 to 139.75 at the Tokyo Stock Exchange. They touched 139.82 yesterday, the highest since March 31. The budget will be financed by using 2.5 trillion yen from pension funds and money originally intended to increase payments to families with children, according to a statement released in Tokyo yesterday. It won't increase an earlier plan for 44.3 trillion yen in new bond issuances this fiscal year. Nippon Life Insurance Co said it plans to invest about 1 trillion yen in the year ending March 31, using as much as 80 per cent of the money to buy yen-denominated bonds. Japan's biggest life insurer will focus on government bonds with longer maturities and corporate debt, said Yosuke Matsunaga, general manager of the finance and investment planning department. Japan's public debt will reach 204.2 per cent of gross domestic product this year, according to the Organisation for Economic Cooperation and Development, the highest level among nations tracked by the group. The OECD on April 21 cut its 2011 growth forecast for Japan to 0.8 per cent from the 1.7 per cent rate it projected in November. The Paris-based organisation urged that the sales tax be doubled to finance relief efforts, saying Japan's fiscal situation has reached a "critical point." Bonds also advanced after the yen reached a three-week high against the dollar, weighing on exporter shares and boosting demand for the relative safety of debt. The yen touched 81.62 per dollar on April 21, the highest level since March 29. A stronger yen cuts the value of overseas income at Japanese companies.