Japan's Largest Insurance Companies To Increase Holdings On Government Bonds Post BOJ's Policy Implementation

By: Asia Business Outlook Team | Thursday, 27 April 2023

Japan's biggest life insurers want to raise their holdings of Japanese government bonds (JGBs) this fiscal year, despite concerns that bond prices will fall if the Bank of Japan modifies its ultra-easy monetary policy.

Market participants anticipate that new Bank of Japan (BOJ) Governor Kazuo Ueda will keep monetary policy ultra-loose during his first policy meeting, which concludes on Friday.

They believe the BOJ's yield curve control policy, which holds the benchmark 10-year government bond yield below 0.5%, will be changed at the June policy meeting.

Nippon Life Insurance, Meiji Yasuda Life Insurance, and Sumitomo Life Insurance all stated that if yields rise as a result of a likely change in the BOJ's policy, they will gradually raise their purchases of JGBs.

"With a change in the YCC policy on the horizon, we will begin buying JGBs gradually and increase our purchases as yields rise," said Akira Tsuzuki, executive officer, finance and investment strategy at Nippon Life, often known as Nissay.

Changes to the BOJ's yield curve control (YCC) policy could include broadening the trading band of 10-year bonds, shifting the bond length objective, or scrapping the programme entirely.

Other long-term investors intend to keep buying JGBs regardless of when the BOJ changes its policy.

"We will not wait for the BOJ to repeal the YCC policy." "We will purchase JGBs in an even distribution," said Yoshiyuki Suzuki, general manager of Fukoku Mutual Life Insurance.

Some investors are considering purchasing 30-year JGBs when the yield, which was last at 1.335 percent, reaches the 1.5 percent threshold.

"We may increase our allocation to 30-year bonds if the yield rises above 1.5 percent," said Mitsuo Masuda, Sumitomo Life's head of investment planning.

Because hedging costs have risen, insurers are wary of purchasing currency-hedged foreign bonds. They want to offset the costs by selling government bonds and purchasing higher-yielding foreign corporate bonds.