MNI: Dai-ichi Life Ups Yen Bond Buys; Flexible on O'seas Bonds

Japan’s Dai-ichi Life Insurance company will boost its holding of yen bonds, mainly via super long-term JGBs, across the April-September period, further adding to purchases after net buys in the last fiscal year, the company's fund manager said Tuesday.

The firm also plans to further cut hedged foreign bond holdings for a second year due to rising hedging costs after lowering the balance last fiscal year as global rates rose, Kouhei Horikawa, general manager of the investment planning department at Dai-ichi Life, told reporters.

Japan's lifers favor long-term yen assets to match liabilities, with hedged foreign bonds an alternative when domestic rates are low.

“The yields on super long-term JGBs are higher than last year and they are favorable for us but they are still low…the yield close to 2% or above 1.5% is more favorable,” Horikawa said.

LOWER RETURNS

The fund manager said that the return from hedged foreign bond investment had worsened sharply as hedging costs soared.

According to Horikawa, the company has been reducing its hedged bonds, with the balance falling by about JPY3 trillion from March 2022 to December 2022, although he thought the decline would be less this year, although flexibility was needed as forex rates fluctuate.

The firm would consider buying unhedged foreign bonds if it expects the yen traded toward the lower end of the predicted ranges of JPY110 to JPY140 against the dollar and JPY120 and JPY155 against the euro.

BOJ POLICY

Horikawa expects the Bank of Japan to raise the 10-year interest rate target or to scrap YCC over the next 6 months..

“Interest rates will rise temporarily due to policy tweaks, but the BOJ will maintain easy policy, given the economic and inflation conditions. Interest rates will likely settle down in the second half of this fiscal year,” Horikawa said. (MNI POLICY: BOJ Aim For Review Flexibility In Policy Statement)

Despite the expected rise of Japanese interest rates, the company will steadily increase the balance of yen bonds.

Japan's second largest life insurer by assets, Dai-Ichi expects the 10-year JGB yield to move in a range of 0.10% to 1.30% this fiscal year and trade at around 0.60% by fiscal year end.

Horikawa said that the company must continue to watch for emerging economic slowdowns if credit conditions tighten or rates rise sharply as inflation remains at elevated levels.

Many Japanese lifers lay out their investment plans early in Q2. On Monday, Nippon Life said they would also boost yen bond purchases. (MNI: Japan Nippon Life To Boost Yen Bond Holdings in FY23)