Nippon Life plans to increase foreign bonds without FX hedge, to cut hedged investment

[TOKYO] Nippon Life Insurance Co plans to increase its holdings of foreign bonds without currency hedging while reducing those with currency hedging in the six months to March, senior company officials said.

Nippon Life expects to have about 800 billion yen (S$9.59 billion) of new funds to put to work in the current half year and will invest a large part of them in such unhedged foreign bonds, they added.

Japan's biggest private life insurer also plans to increase investment in foreign stocks during this period, Naoki Akiyama, general manager of finance and investment planning, told a news conference on Tuesday.

The insurer, one of Japan's biggest institutional investors with total assets of 65 trillion yen, aims to boost returns on foreign bond investments as domestic bond returns remain low, added Mr Akiyama.

The shift to reduce currency hedging came as the cost of hedging for dollar bonds, which is linked closely to dollar short-term interest rates, has risen considerably and looks set to rise further.

"We expect the dollar hedging cost will go even higher as the United States continues gradual interest rate hikes," said deputy general manager Toshinori Kurisu.

Many Japanese insurers, including Nippon Life, had been cautious about buying foreign bonds without such hedging.

In April-September, the firm increased holdings of currency-hedged foreign bonds by 510 billion yen and those of hedged bonds by 230 billion yen.

While a large part of the 800 billion yen of fresh funds is likely to go to unhedged foreign bonds, Mr Akiyama also said the firm's stance on foreign bonds would be flexible and depend on market conditions.

The company does not currently see a strengthening of the US dollar, which it expects to be around 110 yen next March, compared with 113.65 yen now.

Nippon Life also plans to increase its holding of foreign stocks, expecting the global economy to continue its steady growth this year and the next.

It remains reluctant to buy domestic bonds, whose yields have been stuck at lows due to the Bank of Japan's aggressive easing steps.

Nippon Life would consider buying super-long JGBs, if 20 year or 30 year bond yields rise to one per cent or above, said Mr Akiyama.

Yields on 20-year JGBs, a tenor of choice for Japanese life insurers, are currently around 0.600 per cent.

REUTERS