MNI: Japan Sumitomo Life Eyes 30-Year JGBs Above 2%

Japan's Sumitomo Life Insurance company plans to buy several hundreds of billion yen 30-year Japanese government bonds and hedged foreign-denominated currency floating interest rate assets this fiscal year, the company’s chief fund manager said on Wednesday.

“The current 30-year JGB yield (around 1.95% vs. liability cost around 1.8%) is [an] attractive level but we will not buy those bonds actively now as there is a room for the yield to rise further,” Mitsuo Masuda, general manager of the investment planning department at Sumitomo Life, told reporters.

Masuda said the company planed to mainly 30-year bonds, but the balance of yen paper will fall due to the large amount of redemptions.

He expects the BOJ to raise the policy interest rate to 0.25% from a range of zero percent to 0.1% in October but the timing of the rate hike could accelerate due to the weak yen.

Despite the expected rate hike, Masuda does not expect to see a sharp rise in Japanese interest rates as it is unlikely that the BOJ will actively hike amid uncertainties over wage gains next year.

He expects the 10-year JGB yield to move in a range of 0.5% to 1.2% this fiscal year.

The company also plans to increase the balance of hedged floating interest assets but has no plan to increase the balance of hedged sovereign bonds after lowering its holdings of hedged foreign bonds last fiscal year.

As for unhedged foreign bonds, Sumitomo Life will consider further increasing the balance, depending on developments on interest and foreign exchange rates.

Masuda predicts the U.S. dollar, yen pair will move in a range of JPY140 to JPY160.

Should hedging costs drop sharply, the company may consider buying unhedged U.S. sovereign bonds, however, this remains unlikely, he added.