Japan's life insurers to boost JGB buying but wary of policy shift

Japan Post Insurance

27/10/2023 09:15

By Kevin Buckland and Tomo Uetake
       TOKYO, Oct 27 (Reuters) - Japan's biggest life insurers
plan to add to holdings of superlong Japanese government bonds
(JGB) over the next five months, but are cautious amid risks for
a hawkish turn by the country's central bank.
    Nippon Life  NPNLI.UL , Dai-Ichi Life  8750.T  and Meiji
Yasuda Life  MEIJY.UL  were among those who said they aimed to
buy the longest-dated JGBs amid the highest yields in a decade,
but would not do so aggressively due to expectations for even
higher yields as the Bank of Japan moves toward an exit from
stimulus.
    The companies revealed their mid-term strategy updates for
the fiscal year ending in March in interviews and news
conferences over the past two weeks.
    Nippon Life will focus purchases on 30-year JGBs, with the
current yield of above 1.8% "good in terms of absolute level," a
representative for the insurer said at a briefing on Wednesday.
    However, it is "not the time to buy aggressively," the
representative said, adding that the company's base case is for
the BOJ to begin normalising policy between April and September.
    Dai-Ichi Life Insurance, part of Dai-Ichi Life Holdings
 8750.T , expects a BOJ policy adjustment within this fiscal
year, and will adjust the pace of bond buying - centred on 30-
and some 40-year JGBs - to take advantage of any rise in yields
driven by monetary policy speculation, a representative said on
Thursday.
    A representative for Meiji Yasuda Life said on Wednesday the
insurer is "slightly cautious" on bond purchases, and will
accelerate buying of mainly 30-year JGBs on any spike in yields.
    The BOJ next decides policy on Oct. 31.
    Despite uncertainties surrounding the outlook for monetary
policy, a surge in yen bond yields over the past three months
has raised the investment appeal of JGBs. Yields spiked in part
due to the BOJ's relaxation of yield curve controls in late July
and rising U.S. yields to post-financial crisis peaks.
    For life insurers looking to match investments against
predominantly long term, yen-denominated insurance contracts,
JGBs offer the ideal option because they are free from currency
risk, as long as there is enough yield.
    Most of Japan's life insurers say they plan to continue a
shift away from currency-hedged foreign bonds because of the
exorbitantly high cost of hedging contracts.
    A representative of Japan Post Group's Japan Post Insurance
 7181.T  said on Tuesday the company was looking into the
possibility of JGB purchases, with 30-year yields seen as
"attractive" above 1.8%.
    However, like the majority of its peers, the insurer said it
would adjust the pace of purchases in response to the market,
and while 30-year JGBs are its main target, it will select from
a wide range of tenors.
    "We are not going to mechanically purchase superlong JGBs
looking only at yield levels," the representative said. 
    Sumitomo Life Insurance  SMTLI.UL , however, is taking a
slightly different stance, buying up mainly 30-year and some
40-year JGBs, with the idea that yields may already be close to
a peak as the eventual abolishment of the 10-year yield ceiling
and negative interest rates are "to some extent" priced in.
    "It's difficult to imagine that yields will rise
significantly from here," a representative for the company said
on Thursday. 
    "Yields are already at a level that exceeds our liabilities,
making JGBs an appropriate investment."

 (Reporting by Tomo Uetake and Tokyo markets team; Writing by
Kevin Buckland; Editing by Jacqueline Wong)
 ((Kevin.Buckland@thomsonreuters.com;))