Japanese Bond Yields Sink; Nikkei Nears Record Low

Japanese government bond yields held near 20-month lows in early trading today after the Group of 7 industrialized nations called on struggling Japan to provide “ample” funds to its banking system.

Meanwhile, the nation’s benchmark Nikkei-225 stock index hovered above 13,000 today after diving briefly below that level Monday to new 28-month lows--and threatening to slide below its worst level of the 1990s.

In Europe and Latin America, most major stock markets showed only marginal changes Monday, with U.S. markets closed in observance of Presidents Day.

The focus was on Japan, where the G-7 pronouncement for the Bank of Japan to provide enough funds to kick-start economic growth was viewed as unexpected. It could lead to still-lower interest rates in a nation where rates already are about the world’s lowest.

The G-7 announcement, made Saturday, sent the benchmark 10-year Japanese government bond yield down to 1.36% on Monday from 1.40% on Friday. Early today the yield held steady. The current yield is the lowest since the 1.32% set May 26, 1999.

By contrast, the yield on 10-year U.S. Treasury notes is 5.11%.

Worries about the Japanese economy’s malaise sent the Nikkei-225 stock index down as low as 12,950 on Monday, though it rebounded to close off 0.4% at 13,119.59.

The closing low for the Nikkei in Japan’s 11-year bear market was 12,879.97, set on Oct. 9, 1998. A drop below that level could set off new alarm bells about Japan among investors worldwide, analysts said.

Early today in Tokyo the Nikkei was up 54.42 points, or 0.4%, to 13,174.01.

Financial Services Minister Hakuo Yanagisawa said today he would come up with a scheme by the end of next month to help Japanese banks write off their mountain of nonperforming loans.

Yanagisawa said he saw no need to use public money to help banks make the write-offs, which he hoped would be completed by the end of March 2002.

Getting rid of bad loans “will energize the Japanese economy, and I think it would have positive effects on stock prices,” Yanagisawa told a news conference.

But a number of banking analysts are skeptical whether Japanese banks will be able to purge their balance sheets of bad loans without an injection of government funds to top up a capital infusion of $63.8 billion they received in 1998.

Banks have written off or put aside reserves against $585.1 billion of loans since fiscal year 1992.

But as of last September they still had $527.4 billion in so-called “Class Two” loans, which are not yet bad but require close monitoring, and only $105.1 billion in reserves.

In other Asian trading early today, South Korea’s key index was up 0.4% to 599.23 after falling 1.4% on Monday. It was dragged down Monday in part by Friday’s slide in U.S. tech stocks, which pulled the Nasdaq composite index down 5%, to 2,425.38.

The Dow industrials finished Friday at 10,799.82, down 0.8%.

In Hong Kong the Hang Seng index added 0.2% to 15,515.36 early today after falling 0.9% Monday.

Among European stock markets, Germany’s DAX index rose 0.5% to 6,472.21 on Monday, while France’s CAC-40 index eased 0.2% to 5,584.75.

In Latin American trading, Mexican stocks closed unchanged Monday, rallying from slight early losses in extremely light trading.

The market’s key IPC index closed up 1.02 points at 6,369.51.

Brazilian shares slipped Monday on news that the country’s trade deficit widened in the week ended Feb. 18. The main Sao Paulo index, or Bovespa, fell 1.2% to 16,060.