Japan's life insurers shift focus to domestic bonds: Report

In recent years, high hedging costs have kept insurers from investing in foreign debt.

In light of the recent end to negative interest rates in Japan, the country's life insurers are expected to adjust their investment strategies for the new fiscal year, reported Bloomberg.

With the removal of sub-zero interest rates by the Bank of Japan (BOJ) and the anticipation of further rate hikes, life insurers are likely to increase their investments in domestic sovereign bonds.

The yield on 30-year sovereign securities, favoured by insurers for meeting long-term obligations, has risen to nearly 2%, making it an attractive investment option.

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Expensive hedging costs have deterred insurers from investing in foreign debt with hedges in recent years.

Despite the wide yield gap between US and Japanese 10-year yields, the cost of hedging against currency fluctuations often outweighs potential returns, especially with the return from US notes becoming negative.

Insurers may indicate interest in purchasing foreign sovereign and corporate debt without currency hedges, especially as the Federal Reserve is expected to implement interest-rate cuts gradually.

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However, concerns about potential yen strengthening and the challenging currency landscape pose obstacles to overseas investments.

Leading life insurers, including Nippon Life Insurance Co., Sumitomo Life Insurance Co., Dai-ichi Life Insurance Co., Japan Post Insurance Co., and Meiji Yasuda Life Insurance Co., are set to unveil their investment plans for the new fiscal year.

Global investors closely monitor these plans, given the significant assets under management by Japanese life insurers, which collectively amount to $2.6t.