Japan’s life insurers plan to boost JGBs, eye more BOJ policy tweaks

JAPAN’S major life insurers plan to increase holdings of Japanese government bonds (JGBs) this fiscal year amid expectations that bond prices will fall if the Bank of Japan (BOJ) tweaks its ultra-loose monetary policy.

Market players expect new BOJ governor Kazuo Ueda to keep monetary settings ultra-loose at his debut policy meeting which ends on Friday (Apr 28).

But they think a change in the BOJ’s yield curve control (YCC) policy, which keeps the benchmark 10-year government bond yield below 0.5 per cent, is likely at the June policy meeting.

Nippon Life Insurance, Meiji Yasuda Life Insurance and Sumitomo Life Insurance said they would steadily increase JGBs purchases if yields rise, driven by a possible tweak in the BOJ’s policy.

“With a change in the YCC policy in sight, we will start buying JGBs slowly, and buy more when the yields rise,” said Akira Tsuzuki, executive officer, finance and investment planning at Nippon Life, known as Nissay.

Changes in the BOJ’s YCC policy could include widening the trading band of the 10-year bonds, moving the target of the bond duration or abolishing the policy all together.

Other life insurers plan to continue buying JGBs steadily, regardless of the timing of the BOJ’s policy shift.

“We are not going to wait for the BOJ to abolish the YCC policy. We will buy JGBs evenly,” said Yoshiyuki Suzuki, general manager at Fukoku Mutual Life Insurance.

Some are considering buying 30-year JGBs when the yield, which was last at 1.335 per cent, crosses 1.5 per cent.

SEE ALSO

JGB yields fall sharply on short cover buying after BOJ maintains policy

“We could boost the allocation of the 30-year bonds if the yield rises above 1.5 per cent,” said Mitsuo Masuda, head of the investment planning department at Sumitomo Life.

Insurers are cautious about buying currency-hedged foreign bonds because hedging costs have risen. They plan to cover the costs by selling sovereign bonds and buying foreign corporate bonds with higher spreads.

Taiyo Life Insurance plans to buy US and European corporate bonds with investment grades whose spread is as thick as 150 basis points, to cover hedging costs, said Yoshitaka Kiyotomo, executive officer and general manager at investment planning department of the insurer.

They are among 10 insurers which detailed their investment plans for the fiscal year ending March at briefings and interviews over the past several days. REUTERS