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MNI: Japan's Dai-ichi Lifts Yen Bond View, Flexible On Offshore

TOKYO (MNI)

Japanese life insurers discussed asset allocation strategies this week.

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Japan's Dai-ichi Life Insurance company plans to boost its holding of yen bonds, such as project and asset finance and Japanese government bonds, for the October-March period, after increasing the balance of yen bond holdings through the first half of this fiscal year to September, the company's fund manager said on Tuesday.

As for hedged and unhedged foreign bond investment, the company plans to buy and sell those bonds in a flexible manner, against foreign exchange and interest rate developments, Akifumi Kai, general manager of the investment planning department at Dai-ichi Life, told reporters.

Kai said that the company will control the balance of hedged foreign bonds flexibly. The fund manager added that the current situation doesn't prompt the company to lower the balance of hedged foreign bonds.

However, Kai said that the firm will reduce the balance of hedged foreign bonds if the U.S. Federal Reserve is set to raise its policy interest rate. "As for unhedged foreign bonds, the current conditions (low hedging costs) are favorable for us" and the company doesn't see the need to lower its balance now.

For more, see:

MNI: Japan Nippon Life To Boost Yen Bond Holdings In FY2021 2H

MNI: Japan's Sumitomo Life Eyes Yen, Unhedged Foreign Bond Buys

U.S. RATES IN FOCUS

Kai also said that the company is mainly investing in U.S. financial assets but also in Australian and Canadian bonds. The company reduced the balance of both hedged and unhedged foreign bond holdings for the April-September period.

Kai said that the company sees a gradual rise in U.S. interest rates, and he expects the U.S. 10-year bond yield to rise to 1.7% at the end of this year and to 1.8% at the end of March 2022.

The company expects the dollar to move in a range of JPY108 to JPY120 and euro to move between JPY120 and JPY140 this fiscal year. The company expects the U.S. Treasury 10-year to move in a range of 1.00% to 2.00%.

OUTLOOK

Kai didn't elaborate on how positioning may change due to internal compliance rules. Japan's lifer insurers favor long-term yen assets to match liabilities, with hedged foreign bonds an alternative when domestic rates are low.

Japan's second largest life insurer by assets, Dai-Ichi expects 10-year JGB yield to move in a range of -0.25% to 0.25% for the six months to March 2022, which is consistent with the Bank of Japan's clarified range.

Total assets held by Dai-ichi Life totaled at JPY38.27 trillion at the end of June, up from JPY37.85 trillion at the end of March, documents disclosed showed.

The balance of yen bonds at end-June stood at JPY16.79 trillion at the end of June, or 43.9% of its total asset, up from JPY16.74 trillion at the end of March. The balance of foreign currency assets totaled JPY10.62 trillion, or 27.8% of its total asset, up from JPY10.43 trillion at the end of March.