Japan's Sumitomo Life To Raise Foreign Bond Buying In 2H FY17

--Sumitomo Life: To Buy Unhedged Foreign Bonds If Yen Rises 

--Sumitomo Life: To Restrict Investment in Super Long-Term JGBs 

--Sumitomo Life: But To Buy Longer-Term JGBs If Yields Rise

     TOKYO (MNI) - Sumitomo Life Insurance company plans to further increase the

balance of its foreign bond holdings in the second half of the current fiscal

year after increasing the balance by Y640 billion ($5.6 billion) in the first

half of the fiscal year, the company's chief fund manager said Tuesday.

     The company is focused more on U.S. mortgage and corporate bonds than on

U.S. Treasuries, as their yields are higher, Iwao Matsumoto, senior executive

officer and general manager of the Investment Planning Department at Sumitomo

Life, told reporters.

     The company will continue to restrict investment in domestic bonds,

especially super long-term bonds, as yen bond yields are expected to stay at low

levels. The company plans to keep the balance of yen bonds unchanged for the

October-March period after decreasing the balance by Y90 billion ($791 million)

in the first half of the fiscal year, Matsumoto said. 

     However, the company will consider increasing investment in super long-term

JGBs, while selling short- and medium-term bonds, if super long-term bond yields

rise, he said. 

     Japan's fourth largest life insurer by assets raised its holdings of

foreign bonds (including corporate bonds) and stocks, mainly hedged, by about

Y640 billion to Y9.74 trillion or 32.3% of its total asset, during the

April-September period, Matsumoto said.  Sumitomo raised its holdings of foreign

stocks, again mainly hedged, by Y50 billion to Y1.03 billion, or 3.4% of its

total assets, he added. 

     Of those increases, about 60% were securities denominated in U.S. dollars

and about 20% in euros, with the remaining denominated in Australia and New

Zealand dollars, Matsumoto said.

     In the second half of this fiscal year (October 2017 to March 2018), the

company will gradually increase its investments in hedged foreign bonds,

denominated mainly in U.S. dollars. "We basically expect the [U.S.] dollar to

appreciate [on the back of expected rate hikes by the U.S. Federal Reserve]. But

if the dollar weakens [against the yen] to around Y110, we would consider

increasing investments in unhedged foreign bonds," Matsumoto said.

     Sumitomo Life will try to control risks linked to foreign exchange rate

fluctuations in a flexible manner, Matsumoto said without elaborating.

     In the first half of fiscal 2017 ended on September 30, the company

decreased the balance of its domestic public and corporate bond holdings by Y90

billion to Y13.06 trillion or 43.3% of its total assets. 

     Matsumoto expects new assets from insurance premiums in the second half of

the fiscal year to be more than Y500 billion, compared to about Y700 billion in

the first half of the current fiscal year.

     Matsumoto expects the 10-year JGB yield to move between -0.10 and 0.20 in

the current fiscal year and the U.S. Treasury 10-year yield to move in a range

of 1.80% to 2.80%.

     The 10-year JGB yield closed at 0.065% Tuesday.

     Sumitomo expects the dollar to trade between Y100 and Y120 and the euro to

move in a range of Y115 to Y140 in the current fiscal year.

     Life insurance firms favor long-term yen assets that match their long-term

yen liabilities. They consider investments in hedged foreign bonds as an

alternative to yen bond holdings.

     On September 30, Sumitomo Life's assets totaled Y30.14 trillion, up Y1.04

trillion from the end of March. 

     Unrealized profits in securities held by Sumitomo at the end of September

were Y3.42 trillion, up from Y3.30 trillion at the end of March.

     Sumitomo Life expects the Japanese economy to grow 1.5% this fiscal year

and 1.0% in fiscal 2018 and forecasts the U.S. economy will expand 2.2% this

calendar year and 2.4% in 2018.

     The company plans to leave the balance of domestic stocks in its portfolio

unchanged this fiscal year at around Y1.93 trillion, or 6.4% of its total

assets, after decreasing it by just Y20 billion during the April-September

period. 

     Sumitomo expects the Nikkei-225 stock index to move between 18,500 and

24,000 this fiscal year.

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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