TOKYO (Reuters) - Japan’s Asahi Mutual Life Insurance Co plans to invest 100 billion yen this fiscal year in foreign currency bonds without hedging, or ‘open’ foreign bonds, and also cut exposure to dollar assets, a senior company executive said on Wednesday.
The insurer said it would cut exposure to U.S. dollar-denominated bonds to 65 percent from 80 percent due to uncertainty over U.S. political climate, Masaru Tsuruoka, head of the asset allocation and planning department at Asahi Life, told Reuters in an interview.
Instead, the insurer plans to shift its focus to such higher-yielding assets as Australian-dollar denominated bonds and euro-denominated bonds, he said.
While U.S. dollar-denominated bonds will account for 65 percent in the foreign bond investment category, other currency bonds such as Australian and Canadian dollar-denominated bonds will account for 20 percent, while euro-denominated bonds will account for 15 percent.
In this financial year, Asahi’s investment in hedged foreign bonds will fall to 80 percent from 87 percent compared to the last fiscal year.
“If the U.S. hikes rates for 3-4 times a year, hedging costs will rise and it would tarnish our profitability,” Tsuruoka said.
Expectations of more interest rate hikes in the U.S. and President Donald Trump’s ambitious spending program have pushed the gap between U.S. Treasury yields and other currencies.
The insurer plans to invest in dollar-denominated funds without hedging if the dollar trades between 105-110 yen. But if the dollar falls below 105 yen, it will consider currency hedging.
In the last fiscal year, Asahi invested more than 110 billion yen in foreign bonds — 90 billion yen in hedged foreign bonds and 20 billion yen without currency hedging.
The insurer plans to spend 70 billion yen in mutual funds and alternative investment this fiscal year, up from 45 billon yen in the previous year.
It also plans to invest 40 billion yen in mutual funds of stocks and bonds and expects to spend 30 billion yen in such alternative assets as infrastructure funds in the U.S. and Europe.
Amid low-yielding environment in the domestic market, Asahi expects to cut investment in domestic bonds by 50 billion yen, while it reduced 90 billion yen in the last fiscal year.
Tsuruoka said that the insurer expects volatility in the market this fiscal year due to various global risks.
“There are trade friction worries, geopolitical risks, concerns about falling support for Prime Minister Shinzo Abe, which could cause volatility in the market,” he said.
“But if those risks have a limited impact on the real economy, it may create a buying opportunity.”
The insurer forecasts the dollar to trade between 100-115 yen for this financial year. It expects the U.S. benchmark 10-year Treasury yield to move between 2.6 percent and 3.3 percent, and the 10-year JGB yield to trade between 0.0 percent and 0.2 percent.
Writing by Ayai Tomisawa; Editing by Vyas Mohan