April 23, 2014 / 9:36 AM / in 4 years

UPDATE 1-Japan's Sumitomo Life plans a shift to foreign bonds from JGBs

(Adds quotes, details)

By Hideyuki Sano and Takahiko Wada

TOKYO, April 23 (Reuters) - Sumitomo Life Insurance, Japan’s fourth-largest life insurer, plans to shift some funds out of long-term domestic bonds to foreign bonds in the year to March, as bond yields in Japan are too low, a senior company official said on Wednesday.

Sumitomo Life, with total assets of about 26 trillion yen ($253.4 billion), also plans to take more currency risks in foreign bonds, said Iwao Matsumoto, general manager of investment planning at the insurer.

“As the economic environment is improving, we would like to take some risk to boost revenues,” Matsumoto told a news conference.

The move reflects growing risk appetite among cautious Japanese investors, as the Bank of Japan has been printing a huge amount of money for a year to stimulate the economy.

Sumitomo had been the most risk-averse in portfolio investment among Japan’s top four life insurers, buying mostly domestic bonds and putting full currency hedging on what little foreign bonds it held to reduce risks.

In the financial year that began this month, however, the institutional investor plans to allocate about one-third of money that it would have spent in super-long JGBs, such as 20-year bonds, into foreign bonds instead.

This would mean its holdings of foreign bonds are likely to increase by a few hundred billion yen, he said, including a planned increase of foreign bonds without currency hedges by around 100 billion yen.

“Domestic bond yields remain low. The current yield levels of super-long bonds are not that attractive,” Matsumoto said, adding that Sumitomo could increase foreign bonds more than planned if domestic bond yields remained low.

The 20-year JGB yield, the benchmark of ‘super-long’ JGBs, has been stuck around 1.4-1.5 percent in the past few months, its lowest level expect for two short periods below that level, one in 2003 and the other in 2013.

Among foreign bonds, Sumitomo said it plans to continue buy U.S., European and Australian debt instruments.

The company expects the yen to slightly weaken against the dollar in the current financial year to March.

The yen declined sharply in the last financial year, hitting a five-year low of 105.45 yen to the dollar in January due to the BOJ’s aggressive easing.

Sumitomo also said it has no plan to sell domestic stocks for rebalance even if, in line with its expectations, domestic share prices rise.

The firm expects Japan’s Nikkei share average to rise to around 16,600 in next March from around 14,550 now. ($1 = 102.6000 Japanese Yen) (Reporting by Hideyuki Sano; Editing by Dominic Lau & Kim Coghill)

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