Nippon Life to boost yen bonds, hedged foreign bonds
TOKYO Oct 23 (Reuters) - Nippon Life, Japan's biggest life insurer, plans to increase its holdings of yen bonds and hedged foreign bonds in the October-March second half as risks remain of a slowdown in global growth, while low interest rates limit hedging costs.
The life insurer, with total assets of about 50 trillion yen ($626 billion), plans to put about half of 900 billion yen earmarked for investment in the October-March half into yen bonds, with the rest in hedged and unhedged foreign bonds, a senior official said.
Yosuke Matsunaga, general manager of Nippon Life's finance and investment planning department, declined to specify the interest rate differentials at which the firm would invest in hedged foreign bonds, but said he expects global monetary easing to keep interest rates low.
"Global policy rates will have to stabilise at low levels, so unless domestic interest rates turn around and rise, there will be some reliance on hedged foreign bonds," Matsunaga told reporters on Monday. His comments were embargoed until Tuesday.
"Overall, we have maintained our economic forecast at the start of this financial year. But the downside risk to the global economy has risen a bit after the recent slowdown," he said.
European growth has been hit hard by the prolonged euro zone debt crisis, while China, the world's second-largest economy, is struggling to pick up momentum and the United States has high unemployment. A fall in exports amid the global slowdown also threatens to push Japan back into recession.
Nippon Life will invest mainly in yen bonds, diversifying into others depending on relative value, Matsunaga said.
Preliminary estimates showed that in the April-September first half Nippon Life boosted its hedged foreign bond holdings by 200 billion yen, taking them to 5.5 trillion yen, and raised its unhedged foreign bond holdings by 150 billion yen, to 2.38 trillion yen.
"We increased our hedged foreign bond holdings as monetary easing around the world has kept the cost of hedging low," he said. Investors can hedge currency risk on their foreign bond holdings by selling foreign currencies in forward contracts.
The Federal Reserve and the Bank of Japan took further easing steps last month and other countries such as Australia and South Korea cut interest rates this month.
Nippon Life's exposure to the bonds of troubled euro-zone economies is limited to Italy, in which it had about 250 billion yen worth at the end of March after slashing its holdings in the year to March. It has no debt from Spain, Portugal, Ireland or Greece.
Nippon Life's yen bond holdings rose by 760 billion yen to 22.66 trillion yen in the first half. It plans to continue investing in Japanese government bonds with super-long maturities to match its longer-dated liabilities, diversifying maturity dates to ensure liquidity, Matsunaga said, shrugging off concerns about Japanese bond yields rising and prices falling due to ballooning public debt.
"Considering Japan's current account position, its net creditor status and its financial stocks, in the short to medium term there won't be problems in Japan's public finances."
He expects the yield on 10-year JGBs to move in a 0.7-1.3 percent range until next March.
The insurer reduced its Japanese stock holdings by a modest 20 billion yen in the first half to 4.97 trillion yen while increasing foreign shareholdings by 150 billion yen to 1.32 trillion yen.
Emerging market stocks accounted for about 40 percent of the 150 billion yen increase in its foreign shareholdings.
Nippon Life plans to keep steady or slightly trim its overall stock holdings in the second half while eyeing growth opportunities in emerging regions including Asia and South America.
"After increasing foreign stocks in the first half, there is a possibility that we may sell them depending on market conditions," he said.
Nippon Life expects the dollar to trade in a 75-85 yen range and the euro at 94-114 yen between now and March.
Matsunaga said the BOJ's easing trajectory reduces the risk of an excessive rise in the yen while global monetary easing helps stocks to recover, with the Nikkei average seen at 8,500-11,000 and the Dow Jones industrial average at 12,000-15,000 from now to next March.