MNI BRIEF: Japan's Nippon Life Outlines FY Bond Holding Plans

Japan's Nippon Life Insurance plans to increase domestic bonds holdings, such as hedged foreign corporate and yen corporate bonds as well as 30-year Japanese government bonds this fiscal year, Akira Tsuzuki, senior general manager of the finance and investment planning department, told reporters on Tuesday.

Nippon Life also plans to lower the balance of hedged foreign bond holdings because of higher hedging-costs, after increasing the balance by JPY720 billion to JPY6.34 trillion last fiscal year. "We reduced the balance of unhedged foreign bond holding during the last fiscal year as the firm has put top priority of increasing hedged foreign bonds,” Tsuzuki said.

Nippon Life will sell hedged government bonds and shift funds to hedged foreign corporate bonds to seek higher returns, Tsuzuki said, adding for unhedged foreign bonds, the company stands ready to buy and sell bonds in a flexible manner but expects the balance to be unchanged or fall slightly.

"The company will consider allocation of hedged and unhedged foreign bond holding in a flexible manner, while carefully watching the development of forex exchange rate and interest rates," he said. “We will sell U.S. Treasuries and shift investment to corporate bonds as spreads of corporate bonds are higher than those of Treasuries.” He noted that rising U.S. Treasury bond yields and the weak yen trend are offering good chances of unhedged foreign bond investments.

But Tsuzuki said the company is cautious about increasing unhedged foreign bonds. "The yen will likely remain weak for the time being, judging from an interest rate gap between the U.S. and Japan. But if inflationary pressure settles down (as a result of Fed’s rate hike), the rate hike will be paused, which in turn will cause a yen’s rise,” Tsuzuki said.

The company expects the dollar to trade in a range of JPY112 to JPY134 and the euro between JPY126 and JPY154 this fiscal year. The 10-year JGB yield is expected to move between -0.25% and 0.25%, which is consistent with the Bank of Japan’s preferred range, and the U.S. 10-year Treasury bond yield ranging 1.9% and 3.8% during this fiscal year.

Nippon Life, the largest life insurer in terms of assets in Japan, increased the balance of domestic bonds, including hedged foreign corporate bonds, by JPY2.69 trillion to JPY38.82 trillion during the last fiscal year, see: MNI: Japan Nippon Life To Boost Yen Bond Holdings In FY2021 2H. The latest investment strategy outline follows a press conference on Monday by Japan’s Dai-ichi Life Insurance outlining investment plans.