Japan Post Insurance is holding off from buying most domestic super-long bonds, due to concern that the central bank’s reduction of debt purchases may weigh on the market.

Government bond yields have been climbing in recent weeks on expectations that the Bank of Japan will further cut monetary stimulus. The higher yields should be appealing for life insurers in Japan, who are major investors in super-long notes such as 30-year securities. But they’ve been slow to increase their holdings even after the BOJ raised interest rates in March for the first time since 2007.

"Yields on super-long-term bonds have risen to attractive levels,” said Hiroyuki Nomura, senior general manager of Japan Post’s investment planning department. But with Japan’s fiscal year recently starting on April 1, the insurer is watching market developments and only slowly increasing buying, he said.

Japan Post Insurance, one of the nation’s biggest life insurers, held about ¥60.9 trillion ($387 billion) in assets as of the end of March, of which around ¥47.7 trillion were securities, mainly government bonds, according to a statement.

Japan Post forecast in April that the 30-year government bond yield will be 2% at the end of March 2025 — a level it already climbed above last month. Nomura said the 1% 10-year yield level and 2% 30-year rate are "historically important key points,” but their breaches have caused a surge in short-term volatility.

BOJ officials appear to be gradually coming around to the view that normalizing Japan’s monetary policy needs to be done more quickly, Nomura said. An additional interest-rate hike in June or July "would no longer be a surprise,” and the next rate increase after that "can be seen on the horizon,” he said in an interview on May 31.

A lack of clarity about the BOJ’s plan to reduce bond purchases is a bigger cause of stress than the rates outlook in Japan’s debt markets, said Nomura, whose bond-trading career spans three decades. For long-term investors, it’s "a very wait-and-see situation” while market volatility increases, he said.

When the BOJ ended its negative interest rate policy in March, the bank said it would "broadly” keep buying the same amount of bonds as before. But the central bank has also been trying to reduce its presence in the debt market by unloading some of its massive holdings of bonds accumulated during the two decades it carried out quantitative easing to support domestic demand.

Despite having signaled that they seek to cut holdings, when BOJ officials moved to decrease buying of some bonds at regular operations last month, that surprised the market and caused domestic debt yields to rise.

Nomura said it would be good if BOJ officials could announce at their June 13 to 14 monetary policy meeting a plan on how fast the bank will reduce its debt holdings and give investors updates at least on a quarterly basis. "The market will calm down a bit,” if a plan like that is released, he said.