Japan’s Biggest Life Insurer to Reduce Its Yen-Bond Holdings

Japan’s largest life insurer plans to reduce its holdings of the nation’s sovereign bonds, even as higher yields have attracted more domestic buyers and overseas investors to the haven asset.

Nippon Life Insurance Co. said that after making purchases at a brisk pace earlier this month, buying will now steady and that on a book value basis, its holdings of the debt will drop this fiscal year for the first time since the 12 months ended March 2017. 

While yields for 30-year Japanese government bonds favored by Nippon Life are attractive, “the market is highly unstable with low liquidity that’s resulting in heightened volatility,” said Akira Tsuzuki, executive officer of the company’s finance and investment planning department. The pace of purchases may change, depending on market conditions, he said at briefing on Thursday.

With combined invested assets of about ¥390 trillion , the industry’s investment decisions are closely watched by global investors as they can move markets. At the moment, there is a divergence in approaches among them to investments this year.

Nippon Life is similar to Meiji Yasuda Life Insurance Co., which will reduce yen-denominated bond holdings while boosting purchases of foreign bonds and stocks. In contrast, some others such as Fukoku Mutual Life Insurance Co. and Daido Life Insurance are increasing holdings of domestic bonds.

The insurers are contending with the fallout from US President Donald Trump’s tariffs policies, which have whipsawed global markets, sparking so-called sell-America trades as some investors questioned the traditional haven status of the dollar and Treasury bonds. Japan’s super-long government bonds saw a record foreign inflows last month as heightened risk aversion highlighted the securities’ allure as a safe asset.

Read: Japanese Assets Draw Record Inflows in Sign Funds Are Leaving US

Nippon Life expects the Bank of Japan to raise interest rates this fiscal year to 0.75%, from 0.5% now. It also projects Japan’s 10-year yield to rise to 1.4% at the end of the fiscal year, from its current level of about 1.31%.

The global trade war has muddied the picture for the BOJ, with overnight index swaps showing a 59% chance of a rate hike by the December policy meeting, compared to certainty earlier this month. 

“While life insurance companies are delaying investments due to the high volatility, they are sensing potential in current yield levels,” said Ataru Okumura, a senior interest-rate strategist at SMBC Nikko Securities. “Once the market stabilizes, they may enter the market to buy.”

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