TOKYO (Dow Jones) Japanese Economy and Banking Minister Kaoru Yosano declined Friday to say whether recent gains in yields on Japanese government bonds reflect the state of the economy, instead saying one should consult market forces.
"One should ask financial markets whether JGB yields are in line with Japan's economic outlook," Yosano told reporters at a regular briefing.
Earlier Friday, yields on the newest 10-year JGB rose to 1.980%, marking the highest level since Sept. 9, 2000, as declines in Treasurys prompted heavy selling, traders said.
Yields on JGBs have been rising since the Bank of Japan last month ended its quantitative easing policy, shifting its focus to short-term interest rates from the amount of excess liquidity in the financial system.
While the BOJ has signaled it will keep the short-term rate target near zero for some time, expectations that the central bank may hike rates as early as this summer have pushed bond yields sharply higher.
Yosano, who presented the Cabinet Office's economic report for April to cabinet ministers earlier Friday, said it's important for the economy to continue recovering without large fluctuations.
He also said it's important to have stable prices and long-term interest rates that are in line with the economy.
In the report, the Cabinet Office left unchanged its upbeat assessment that "the economy is recovering."
However, Yosano did identify risks to the world's second-largest economy.
"Japan has become more energy efficient over the years, but high oil prices are clearly pushing up costs," he told reporters. "The government must watch this situation with great care."
Yosano was also cautious about predicting when the economy will escape deflation, saying that economists may not realize it's happened until well after the fact, given the lag in the release of economic data.
In it's monthly economic report, the government stuck to its view that the country remains in mild deflation, partly because high oil prices are contributing to most of the gains in the consumer price index.
Yosano also noted that Japanese companies who in the recent past drew up aggressive capital expenditure plans are now becoming more careful about corporate spending.
Yosano also said that some companies are becoming more cautious about increasing inventories.
The government downgraded its view on corporate sentiment for April to "some companies are showing caution" from sentiment is "moderately improving."
-By Stanley White, Dow Jones Newswires; 813-5255-2929; email@example.com
-Edited by Chris Gallagher and Tomoko Hosaka
(END) Dow Jones Newswires