Japan's life insurers edge up JGB purchase pace with yields expected to rise

Japan Post Insurance

25/04/2024 11:05

By Tomo Uetake and Brigid Riley
       TOKYO, April 25 (Reuters) - Japan's major life insurers
are slowly increasing the pace of Japanese government bond (JGB)
purchases in an improved investment environment, although remain
restrained as they assess how far yields could rise. 
    The end of negative rates had led to an improvement in the
investing environment, companies said, with additional rate
hikes this year seen as an opportunity for JGB yields to rise
further. 
    Most life insurers expect the Bank of Japan (BOJ) will raise
policy rates one more time before the end of the year. They also
expect that will push up the JGB's yield curve.
    The yield on 30-year JGB  JP30YTN=JBTC , the main investment
target of the life insurers, currently sits at 1.95%, exceeding
the big insurance companies' average liability cost of 1.8%.
    "We are buying 30-year JGBs now as the yield has become
attractive," said Nippon Life, the country's largest private
insurer.
    Other life insurers are taking more restrained views,
believing the yield will rise higher in the near future. "We
prefer to wait until the 30-year bond yield will exceed 2%,"
said Dai-ichi Life  8750.T .
    Meiji Yasuda Life forecasts the 30-year yield will climb to
2.1%-2.2% in the current fiscal year through March, as the bond
market prices in another rate hike.
    Still, market participants predict the 30-year yield rise
could slow down somewhat after it surpasses 2% as demand for the
JGBs among life insurers increases. 
    
    LOST TAILWIND
    While life insurers assess the improvements in JGB yields, a
tailwind from an economic value-based solvency regulation, which
will be introduced in Japan next April, has run its course.
    "We bought enough super-long JGBs to meet the regulatory
requirements over the past 3-4 years. Now we can make investment
decision solely based on the attractiveness of the yield," said
Akira Tsuzuki, executive officer at Nippon Life. 
    Meiji Yasuda, Sumitomo Life and Japan Post Insurance
 7181.T  also announced similar shifts to buying based purely on
investment value rather than for compliance purposes.
    Despite the BOJ's historic exit from negative interest rates
in March and expectations for yields to climb on the back of
additional rate hikes, life insurers are still not ready to go
super aggressive in the JGB market. 

 (Reporting by Tomo Uetake; writing by Brigid Riley, Editing by
William Maclean)
 ((brigid.riley@thomsonreuters.com;))