Fukoku Mutual Life Insurance Co. plans to slow purchases of Japanese government debt this fiscal year as it sees limited upside in super-long bond yields.
The insurer expects to boost its holdings of Japanese bonds by ¥110 billion ($691 million), scaling back from last fiscal year's projected increase of about ¥480 billion. Investment decisions by Japan's life insurers are closely tracked as they can move global markets. Fukoku is the first among Japan's insurers to report plans for the fiscal year.
"Last fiscal year, domestic yields rose more than expected, so we increased investments by shifting from foreign bonds," said Yusuke Onodera, executive officer of the investment planning department at Fukoku. "But this year, we see super-long bond yields remaining generally flat, so the pace of replacements will be more mild."
Super-long Japanese government bond yields hit multi-decade highs in January on fears of fiscal overspending as Prime Minister Sanae Takaichi proposed consumption tax cuts. Yields have eased slightly but are hovering near those levels as traders mull recent developments in the Middle East.
Fukoku sees the 10-year bond yield at 2.3% and the 30-year rate at 3.5% at the end of this fiscal year, both lower than current levels of around 2.4% and 3.6% respectively. Still, Onodera noted that there's a risk that concerns over fiscal policy could trigger a sharp decline in the yen and a rise in longer-maturity yields again.
"Volatility in Japanese bonds increased amid the Takaichi trade, so we did become somewhat cautious last fiscal year," said Onodera. "Yields are higher than last year so we will steadily buy this year too," while responding flexibly to market developments.
