Japan's biggest life insurers face hurdles wherever they seek returns in the fiscal second half, as Bank of Japan debt buying depresses local yields, the yen shows signs of strength and currency hedging costs soar.
Nippon Life Insurance Co. said Thursday it plans to keep Japanese government bond holdings unchanged, bemoaning local yields, while boosting foreign bonds without hedges. Sumitomo Life Insurance Co. on Tuesday said it plans to buy about ¥300 billion ($2.5 billion) in overseas notes, after buying more than ¥500 billion in first half, while Dai-ichi Life Insurance Co. said it will watch currency moves when managing global debt investments that it increased in the first half. Meiji Yasuda Life Insurance Co. said it plans to boost buying abroad with no hedging depending on yield and exchange-rate levels.
The nation's life insurers, the biggest holders of Japanese government bonds after the central bank, are having to hunt far and wide for higher yields as the BOJ's radical stimulus makes JGBs scarce. A two-month rally in the yen and a surge in the cost of key derivatives have made overseas investment less appealing. Cross-currency basis swaps show yen holders seeking to borrow dollars were asked to pay the highest premium since December 2011 over Japanese interbank money market rates this month.