Japan Post firms say BOJ's new policy will not alter portfolios

Japan Post Insurance

21/03/2024 04:45

By Ritsuko Shimizu
       TOKYO, March 21 (Reuters) - Japan Post Bank  7182.T  and
Japan Post Insurance, which are among Japan's largest financial
firms, said their portfolios and hedging policies will not
change drastically in response to the country's first rise in
interest rates in more than a decade.
    Japan Post Insurance  7181.T , which is a part of the Japan
Post Holdings  6178.T  conglomerate, said the Bank of Japan's
radical policy pivot this week to end negative rates did not
mean interest rates would rise rapidly.
    Rate rises in Japan "will lead to a decline in the market
value of bond holdings" but the firm would seek to increase
yield by replacing holdings with bonds whose yields exceed the
cost of liabilities, Japan Post Insurance said in comments
emailed to Reuters.
    "We expect hedging costs to remain high as the Bank of Japan
is unlikely to raise interest rates continuously and foreign
central banks are unlikely to cut interest rates rapidly," the
company added.
    The impact on the bottom line will be limited, it said, as
about 90% of its domestic bonds were "in held-to-maturity and
policy-reserve-matching bonds, which are not marked-to-market
for accounting purposes".
    The BOJ's widely anticipated end to its unorthodox yield
curve control policy has put the spotlight on the $2.4 trillion
of foreign debt that Japan's life insurance companies, pension
funds, banks and trust firms collectively hold. 
    Most analysts suspect these holdings, which earn yen
investors upwards of 5%, will stay offshore and unaffected by
the slight increase in yen rates. For banks and life insurance
firms, which hedge the bulk of their foreign bond holdings, the
shift in policy does not materially lower hedging costs much
either.
    Japan Post Bank, a behemoth postal savings firm, had 83
trillion yen ($548 billion) of long-term foreign securities
including debt and investment trusts at the end of December.
    It said a rise in short-term rates could increase earnings
and a rise in long-term rates could improve future earnings
growth, albeit with a temporary hit to valuations on current
Japanese government bond holdings.
    "We believe that this can be adequately managed due to the
fact that we have a large amount of capital and have been
conducting thorough risk management with an eye to rising yen
interest rates," the bank said.
    "We do not expect to make any major changes in our
investment strategy in foreign bonds."
($1 = 151.4500 yen)

 (Writing by Vidya Ranganathan; Editing by Jamie Freed)
 ((vidya.ranganathan@thomsonreuters.com; +65 6973 8261;))