Japan’s life insurers set to buy JGBs in Oct-March, weigh risk returns
By Tomo Uetake
TOKYO (Reuters) – Japan’s major life insurers are expected to continue purchasing Japanese government bonds (JGBs) into the second half of the fiscal year, but the pace and extent of these purchases will vary as firms strive to balance risk and return.
Life insurance companies, some of the country’s largest institutional investors, have long relied on superlong JGBs as the backbone of their asset management. The strategy appears unlikely to change in the six months through March.
Nippon Life Insurance and Dai-ichi Life Insurance were among a majority of life insurers planning to increase or continue to buy JGBs at a steady pace, although demand was somewhat more prominent among mid-tier firms.
This trend follows an uptick in JGB yields, which have become increasingly attractive to life insurers as the Bank of Japan (BOJ) has begun normalising its ultra-easy monetary policy this year.
The firms unveiled their investment strategy updates for the fiscal year ending in March 2025 in interviews and news conferences over the past two weeks.
The yield on the 30-year government bond, a mainstay of many life insurers’ investment strategies, was at 2.2% at the time the companies spoke to Reuters, above major life insurers’ average liability cost level of 1.8%.
Nippon Life, the country’s largest private insurer, has said it will focus on the superlong government bonds while selling off lower-yielding bonds.
But companies indicated that they will buy more aggressively when yields rise further, anticipating the appeal of super-long government bonds to increase.
Dai-ichi Life, the second-largest private insurer and part of Dai-ichi Life Holdings, has set “a rise to 2.5% in 30-year yields” as a guideline for accelerating purchases of the bond, a view that was in line with other life insurers.
However, the prospect of yields reaching this level within the remainder of the fiscal year was seen as uncertain. Nippon Life and Meiji Yasuda Life set 2.5% as the upper limit in forecasts, while some others expected a high of only 2.4%.
The BOJ is expected to hold short-term interest rates steady on Thursday, but market players expect another hike could occur at the end of the year or early 2025.
Despite Nippon Life joining mid-tier insurers indicating more appetite to buy JGBs in the second half of the fiscal year, Dai-ichi and other large firms were still a bit reluctant given they have already bought enough bonds to comply with new capital regulations coming into effect in April.
Meiji Yasuda Life was among companies planning to consider diversifying to include other assets as they evaluate return versus risk.
“We will not blindly buy JGBs to meet the new regulations as we have done in the past few years,” said Kenichiro Kitamura, head of investment planning department at Meiji Yasuda Life.
“For us, yen bonds are just one portion of global bonds. We don’t rely on JGBs only and will diversify our investments while maintaining balance.”