Japan Post Insurance to boost foreign debt as JGB yields plunge

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Japan Post Insurance Co., the nation’s biggest insurer by assets, plans to increase investments in foreign debt to boost returns as the central bank’s negative interest rate policy sends government bond yields to unprecedented lows.

The insurer, which has more than half of its ¥82.7 trillion of assets in Japanese government bonds, will lift its allocation to stocks and foreign debt to 10 percent of the portfolio by March 2018 from 6.4 percent as of December 2015, Chief Executive Officer Masami Ishii said.

“We will probably put more weight on foreign bonds” and consider increasing hedging against currency risk on such investments given the yen’s recent advance, Ishii, 63, said in an interview in Tokyo. “We’ll have to figure out ways to maintain a balance between the cost of hedging and investment.”

Shares of Japanese insurers have tumbled since the Bank of Japan last month announced its decision to introduce sub-zero interest rates, sending the benchmark 10-year JGB yield into negative territory for the first time and fueling concern that returns on the securities will diminish.

Japan Post Insurance has still gained about 9 percent since it was listed in November as part of the government’s biggest privatization deal this century.

The Bank of Japan on Tuesday started charging 0.1 percent on a portion of the excess funds that lenders park at the central bank. Yields on 10-year JGBs were at 0.006 percent Friday morning in Tokyo after falling to a record low of minus 0.035 percent last week. While the BOJ’s policy has failed to stem gains in the yen, Nomura Holdings Inc. sees the currency dropping to 130 against the dollar by year-end from around 113 now as investors buy more overseas assets.

Japan Post Insurance has about 55 percent of its assets in JGBs and 19 percent in Japanese municipal and corporate bonds.

Separately, Ishii said the insurer will continue to boost shareholders returns and will not rule out increasing the dividend payout ratio beyond its current target of 30 percent to 50 percent.

“As long as we can secure capital, factor in profits and payouts to policy holders, we won’t limit our dividend payment to 50 percent,” he said.