“We don’t believe the effect of the stimulus will fade,” Yosano said.

TO BE NOTED: From Bloomberg:

"Yosano Says Japan’s Trust in Treasuries ‘Unshakable’ (Update1)

By Keiko Ujikane and Takashi Hirokawa

June 12 (Bloomberg) -- Japanese Finance Minister Kaoru Yosano said his government is confident about the outlook for U.S. Treasuries, signaling the second-biggest foreign holder of the securities will keep buying them amid record sales.

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending a Group of Eight meeting of finance ministers starting today in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”

The U.S. government has come under fire from some creditors as spending to prop up its economy is projected to quadruple its budget deficit to $1.85 trillion in the year ending Sept. 30. China and Russia, the largest and third-largest single holders of the debt, have said they may reduce their reliance on dollar- denominated assets, fueling a surge in Treasury yields to a seven-month high.

“Japan is, of course, mindful that selling Treasuries will cause the yen to strengthen and that would hurt corporate profits,” said Chotaro Morita, chief strategist in Tokyo at Barclays Capital Japan Ltd. in Tokyo. “Even with their strong ties, it’s possible Japan would consider selling U.S. Treasuries should the dollar say, halve in value.”

Yields Jump

Ten-year Treasury yields fell two basis points to 3.83 percent after Yosano’s remarks and have jumped from a record low of 2.04 percent in December. They advanced to their highest since Oct. 16 this week after Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said on June 10 his country may switch some of its Treasury holdings to International Monetary Fund bonds.

China Premier Wen Jiabao called in March for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

“We have complete faith in U.S. economic and fiscal policy,” said Yosano, who is also the minister in charge of Japan’s banking sector and economic policy. “The U.S. dollar’s position as the world’s reserve currency isn’t under threat.”

U.S. President Barack Obama has tried to assuage investor concern by pledging to cut the shortfall in half by the end of his first term. Obama may borrow a record $3.25 trillion this fiscal year, almost four times last year’s amount, according to Goldman Sachs Group Inc.

Strong U.S. Currency

A strong U.S. currency benefits Japan by increasing corporate profits in yen terms and preserving the competitiveness of exports. A collapse in global demand and the yen’s 8.5 percent advance against the dollar since September caused earnings to tumble a record 69 percent last quarter.

Japanese investors are the biggest foreign holders of Treasuries after China with $686.7 billion of the securities in March, according to the Treasury Department. To reduce Japan’s investment risk, some lawmakers have argued the U.S. should sell yen-denominated debt, an idea Yosano said the government wouldn’t pursue.

“We have no intention of asking for that,” Yosano said. “It’s up to the U.S. to decide whether to issue dollar- denominated bonds or samurai yen-denominated bonds.”

Masaharu Nakagawa, finance spokesman of the opposition Democratic Party of Japan, said last month the government should ask the U.S. to sell debt denominated in yen, so-called samurai bonds, over his concern that the dollar may weaken.

Poets in Family

Yosano, a cancer survivor who became a lawmaker in 1976, is the grandson of Tekkan and Akiko Yosano, poets whose work is taught to school children. The son of a diplomat, Yosano is fluent in English and studied in Cairo for three years when he was a teenager. He graduated with a law degree from Tokyo University in 1963.

Under Yosano’s stewardship, Japan in April unveiled a record 15.4 trillion yen ($158 billion) stimulus package to pull the nation out of its deepest postwar recession. The minister said new measures may not be needed because packages announced since last year have already started to support the economy.

“We don’t believe the effect of the stimulus will fade,” Yosano said.

In the long term, Japan will need to reduce its reliance on exports and foster spending at home to sustain growth, he said.

“Ceaseless efforts are needed to create new technology and products,” Yosano said. “We need to increase domestic demand to invigorate the economy and make a significant contribution to global growth.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

rise in Treasury yields since May has rippled across other markets and increased mortgage rates and other consumer borrowing costs

TO BE NOTED: From Reuters:

"U.S. sweetens 10-year note sale to draw wary buyers

Wed Jun 10, 2009 3:33pm EDT

By Richard Leong

NEW YORK (Reuters) - Investors sent a clear signal to the U.S. government on Wednesday. Pay up.

The U.S. Treasury was forced to sweeten its $19 billion sale of 10-year notes to attract investors who have grown wary of its burgeoning debt load. These notes originally sold in May cleared at 3.99 percent, the highest since August 2008.

This is the first auction of long-dated federal debt since questions over the U.S. government's credit-worthiness arose in the wake of a credit outlook downgrade of Britain by Standard & Poor's last month.

The United States and Britain are conducting similar policies to revive growth, but their tactic of borrowing heavily to finance massive stimulus and financial bailouts have raised doubts about their ability to repay their debt.

"The auction was weak...There's some negative psychology," said John Spinello, chief fixed-income technical strategist with Jefferies & Co. in New York.

The auction's "tail," or higher-than-expected yield the Treasury paid, deepened Wednesday's sell-off in the Treasuries market. Ten-year yield briefly touched 4 percent, a key trading support and a level not seen since October.

The rise in Treasury yields since May has rippled across other markets and increased mortgage rates and other consumer borrowing costs. This has also fanned worries an emerging economic recovery might stall, putting more pressure on the Federal Reserve and Obama Administration to do more to end the worst recession in decades.

DEMAND SPIKES WITH YIELD

Investors extracted 0.80 percentage point more in yield at this 10-year reopening than when the note was sold originally at the record quarterly refunding a month ago.

The added yield incentive pulled reluctant participants from the sidelines, resulting in the strongest bid 10-year auction since September 2007.

The bid-to-cover ratio, or amount of total bids to amount offered, came in at 2.62, while the share of indirect bids, which include those from foreign central banks and institutional investors, reached 34.2 percent, the highest for at a 10-year reopening in five years.

To be sure, that 10-year reopening in June 2004 was much smaller at $10 billion.

Disappointment over the 10-year sale cast a shadow over the Thursday's $11 billion reopening of a prior 30-year issue and subsequent Treasury offerings, analysts said.

"One of the probable consequences is that auctions in general are going to be sloppier than what historical norms suggest that will be, and to what we have become accustomed," said Ward McCarthy, managing director at Stone & McCarthy Research Associates wrote in a research note.

(Additional reporting by Ellen Freilich)"