By Tomo Uetake and Brigid Riley
TOKYO (Reuters) – Japan’s largest private life insurer, Nippon Life Insurance, has bought more foreign bonds since October and may keep buying them this year, given the impact of U.S. President Donald Trump, the firm’s top investment officer said.
In an investment strategy update outlined in mid-October, the life insurer had projected its foreign bonds holdings without currency hedges would remain unchanged or decline, while increasing the holding of hedged ones through purchases of private debt.
It had also forecast the dollar would fall to around 145 yen by March as the Federal Reserve cuts short-term interest rates and the Bank of Japan (BOJ) raises its policy rates.
But Trump’s policies, many of which the markets view as potentially inflationary, have increased the likelihood the Fed may delay rate cuts, pushing up U.S. Treasury yields and strengthening the dollar.
As a result, the yen may not rapidly appreciate, prompting Nippon Life to change its course and add both FX hedged- and unhedged- foreign bonds to their portfolio, Akira Tsuzuki, executive officer and general manager of finance and investment planning, told Reuters in an interview late on Wednesday.
Investment plans for the fiscal year starting in April are still under discussion, but Nippon Life is considering buying more Treasuries, Tsuzuki said.
“The long-term Treasuries that we aim to invest in still have attractive yields. Given the fall in hedge costs, if we buy now, it would turn out to be a very good investment in the long run,” he said.
Nippon Life reduced its holdings of hedged foreign bonds in the fiscal year 2022 in anticipation of rising hedge costs.
Dollar hedge costs, however, declined to roughly 4% from the lower 5% in April last year and the firm bought the government bonds of the United States and several European countries, which it declined to specify.
Nippon Life also continued to purchase Japanese government bonds (JGBs) in line with forecasts as yields climbed on BOJ rate-hike bets.
The yield of the 30-year JGB, a staple of Nippon Life’s and many other life insurers’ investment strategy, touched a one-month peak of 2.355% on Wednesday, while the 10-year bond yield hovered near its highest since November 2009 at 1.44% on Thursday.
Nippon Life expects the BOJ to gradually raise rates to 1% by March 2026, and that JGB yields will not rise much given the market has priced in additional rate increases.
“I think the mid-1% range might be the fair level for 10-year yields in the coming fiscal year. We see the 30-year yield to be in the mid-2% range. So there is not much upside from here,” Tsuzuki said.
The dollar last traded around 150.32 yen.
(Reporting by Tomo Uetake and Brigid Riley; editing by Barbara Lewis)
