Japan Post Holdings Co. will shift more of its $2.6 trillion investment portfolio to riskier assets to boost profitability as negative interest rates shrink income from government bonds.
The newly privatized postal and financial giant, which has about ¥205.5 trillion ($1.9 trillion) managed by its banking unit and ¥82.7 trillion at its insurer, will buy assets such as overseas real estate investment trusts and infrastructure funds and has begun investing in private equity, said President Masatsugu Nagato.
Japan Post has already been diversifying its portfolio away from government bonds, which now make up about 40 percent of its banking unit’s portfolio, to reduce its reliance on the securities for returns. Yields on about 70 percent of the nation’s sovereign debt are now below zero following the central bank’s January decision to introduce negative interest rates to spur lending and inflation.
“Common sense says we won’t be re-investing in JGBs as holdings mature,” Nagato, 67, told a group of reporters Thursday. The 0.1 percent charge that financial institutions must now pay on some funds they park at the Bank of Japan is “manageable,” he said, without elaborating.
Nagato, formerly president of the banking unit, took the helm of the holding company on April 1 as fading health forced predecessor Taizo Nishimuro to step down. As well as deal with negative rates, he must find a way to boost earnings at a company that’s required by law to maintain universal services amid a declining population.
Nagato said he wants to consider acquisitions, investments and tie-ups as a way to increase sales in the group’s less-profitable postal business, without giving details on any specific negotiations. Japan Post acquired Australian logistics company Toll Holdings Ltd. for about $5 billion last year.
He also said he plans to focus on fee businesses such as sales of investment products to Japanese individuals. Japan Post set up an asset management venture with Sumitomo Mitsui Trust Holdings Inc. and Nomura Holdings Inc. last year.
Japan Post and its bank and insurance units were listed last November following a $12 billion initial public offering of as much as 11 percent of each company’s shares. Nagato said the three firms would conduct further share sales as soon as possible to maximize their independence. He was unable to be more specific about the timeline because the six-month lock-up period after the IPO is still in force. The government plans to ultimately sell about 50 percent of Japan Post Holdings.
Japan Post Bank Co., the nation’s largest holder of deposits, said in January it wants to put several trillion yen into areas such as private equity and hedge funds over the next five to 10 years.
Japan Post Insurance Co., which still has more than half of its assets in Japanese government bonds, plans to increase investments in foreign debt to boost returns, Chief Executive Officer Masami Ishii said in February.