MNI: Dai-ichi Life To Increase Longer JGB Holdings

Japan’s Dai-ichi Life Insurance company will further increase its holding of yen bonds, mainly 30- and 40-year Japanese government bonds, for the second half of this fiscal year to March 2024, the company’s fund manager said on Thursday.

“We plan to increase the balance of yen bonds steadily but we will increase its purchase of yen bonds, if JGB yields rose,” Kouhei Horikawa, general manager at the investment planning department at Dai-ichi Life, told reporters.

The company increased its balance of yen bond holdings for the April-September period.

Horikawa expects the Bank of Japan to adjust its easy policy as early as this month without elaborating on how the BOJ would adjust the yield curve control. He also expects the BOJ to remove the negative interest rate policy or scrap YCC in the January-March period, but added the timing of BOJ policy change could quicken depending on the inflation rate. He does not expect Japanese interest rates to rise sharply even if the BOJ tweaks the easy policy but they will stay at high levels.

Horikawa said 30-year JGBs at about 1.8% are attractive, but he noted a little higher yield was better as he expects the 30-year JGB yield to move in a range of 1.5% to 2.3%.

The company expects the 10-year JGB yield to move in a range of 0.5% to 1.3% for the October-March period with trading around 0.9% in March.

FOREIGN BONDS

Dai-ichi Life maintains its flexible stance on hedged and unhedged foreign bond investment after the company increased unhedged foreign bond holdings for the April-September period.

The company expects the dollar to trade in a range of JPY130 to JPY155 for the second half of this fiscal year with trading at around JPY145 in March.

Horikawa said the company had reduced the balance of hedged foreign bonds for April-September period, mainly U.S. Treasurys, as hedging costs have risen sharply. But he added that the company will increase its purchase of hedged foreign bonds, depending on evolving interest rates, and said that steepening yield curve will prompt the company to purchase hedged foreign bonds.

Dai-ichi Life will increase its purchase of unhedged foreign bonds, depending on developments of foreign exchange rates, although the company increased the balance of unhedged foreign bonds for the April-September period on the back of the yen’s fall.

Japan's life insurance firms favour long-term yen assets to match liabilities, with hedged foreign bonds an alternative when domestic rates are low. The total assets held by Dai-ichi Life at the end of March totaled JPY33.10 trillion; yen bonds totaled JPY17 trillion, or 51.6% of the total assets and foreign-currency denominated bonds totaled JPY4.94 trillion, or 14.9% of the total assets..