TOKYO Oct 13 Fukoku Mutual Life Insurance
will continue to invest in foreign bonds without
currency hedging in the second half of the current fiscal year
due to rising dollar hedging costs, a senior company official
said, just as it did in the first half.
Hedging dollar-denominated investments has become more
expensive as U.S. and Japanese monetary policies move in
opposite directions, increasing the cost of compensating for the
expected divergence in returns.
With Japanese government bond yields falling to record lows
under the Bank of Japan's negative interest rate policy,
Japanese investors have turned to foreign assets in search of
higher yields, but the strong demand has come with increased
currency hedging costs.
Fukoku bought foreign bonds without currency hedging, or
"open foreign bonds" such as U.S. Treasuries, worth 210 billion
yen ($2.04 billion) in the first half ended September, Takehiko
Watabe, general manager of investment planning, told Reuters on
This took the insurer's total foreign bond investment to 270
billion yen in the first half, Watabe said, adding it planned to
buy an additional 20 billion yen worth open foreign bonds in the
Fukoku, which had 6.5 trillion yen in total assets at the
end of the previous fiscal year, invested 60 billion yen worth
hedged foreign bonds in the first half, compared with the 160
billion yen it planned to invest in May.
"When we made our investment plans in May, hedging costs
were already rising, but they rose further in the summer,"
"An increase in the cost of hedging diminished the appeal of
hedged foreign debt, so we shifted to open foreign debt."
The value of the insurer's hedged foreign bonds has shrunk
as the yen strengthened, he said. But the insurer made profits
from the previous year's investment in hedged foreign debt,
which was allocated to open foreign bonds cheaply this year.
Watabe also said Fukoku aimed to buy more equities than it
planned initially, in a move to net higher yields. It planned to
buy 75 billion yen worth of both Japanese and overseas equities,
up from the 65 billion yen planned earlier, he said.
"We plan to add additional 10 billion yen in Japanese
exchange traded funds as hopes that the BOJ will buy ETFs
supports the market," Watabe said, adding that Fukoku refrained
from investing in JGBs due to the record low yields on Japanese
The BOJ surprised markets by introducing measures to control
the yield curve in its policy meeting last month and said it
would aim to keep the 10-year government bond yields at around
But the 10-year Japanese government bond yield
has been in negative territory. On Thursday, it
stood at minus 0.060 percent.
The U.S. benchmark 10-year Treasury yield was
last at 1.7446 percent, and Watabe expects it to trade between
1.3-1.9 percent in the second half of the fiscal year.
($1 = 102.9000 yen)
(Reporting by Ayai Tomisawa; Editing by Biju Dwarakanath)