MNI: Japan Sumitomo Life To Up Yen, Hedged Foreign Credit

Japan's Sumitomo Life Insurance company plans to further increase yen bond holdings, mainly 30-year Japanese government bonds, and hedged corporate bonds in the U.S., for the second half of this fiscal year to March 2024, the company’s chief fund manager said on Thursday.

“The current 30-year JGB yield is attractive level for us. We plan to buy those bonds constantly but we will increase the scale of purchase when interest rates rise,” Mitsuo Masuda, general manager of Investment Planning Department at Sumitomo Life, told reporters.

Masuda expects the 30-year bond yield to move in a range of 1.3% to 2.0%, although the 30-year bonds traded at around 1.8%.

Sumitomo Life increased the yen bonds, mainly 30-year JGBs, by several hundreds billions of yen for the first half of this fiscal year ended on September 30 and the company plans to increase the yen bonds by the similar size for the second half of this fiscal year.

The company expects the 10-year JGB yield to rise to 1% for the October-March period and to trade at around 0.70% at the end of March.

As for the outlook for the Bank of Japan’s monetary policy, the main scenario that Masuda predicts is that the BOJ scraps the YCC and removes the negative interest rate in April 2024 after wage hikes are confirmed.

But Masuda did not rule out the possibility that the BOJ would scrap the YCC this year and remove the negative interest rate at the beginning of next year as the yen’s fall continues and Japan’s inflation rate stays at high levels.

FOREIGN BONDS

The company plans to increase the balance of hedged corporate bonds in the U.S. and unhedged U.S. Treasuries and mortgaged-backed securities.

Sumitomo plans to increase the balance of unhedged foreign government bonds but Masuda said, “There is the possibility that we may not increase the balance of unhedged foreign bonds if the weak yen persists.”

The company will lower the balance of hedged foreign bonds for the six months to March 2024 as hedging costs stay at high levels, although the company lowered the balance for the first half of this fiscal year.

Sumitomo expects the U.S. Treasury 10-year yield to move in a range of 3.25% to 5.25% and trade at 4.00% at the end of March. The company expects the dollar to trade between JPY130 and JPY155 and the euro to move in a range of JPY135 to JPY165 this fiscal year.

At the end of September, Sumitomo Life's assets are estimated at JPY36.00 trillion, up JPY1.41 trillion from a year earlier.