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UPDATE 1-Nippon Life to step up foreign bond investment, to reduce FX hedge
April 26, 2017 / 12:12 PM / 5 months ago

UPDATE 1-Nippon Life to step up foreign bond investment, to reduce FX hedge

* Plans to curb investment in domestic bonds in 2017/18

* To increase foreign bond investment without currency hedge

* Aims to diversify into overseas project finance investments (Adds detail, quotes)

By Tomo Uetake

TOKYO, April 26 (Reuters) - Japan’s biggest private life insurer Nippon Life Insurance Co plans to boost foreign bond holdings without currency hedging in an effort to counter low domestic interest rates, senior company officials said on Wednesday.

Japanese insurers have been shifting into foreign assets in search of higher yields, but the biggest challenge has been how to secure sufficient returns after hedging against currency swings.

“When appropriate, we plan to buy foreign bonds without currency hedging this fiscal year (to March 2018), as we expect the dollar to strengthen gradually,” Naoki Akiyama, general manager for Nipon Life’s investment planning, told reporters.

The company expects the 10-year Treasuries yield to edge up to 2.5 percent at the end of the financial year to next March, compared with 2.3 percent now.

Nippon Life’s dollar forecast, meanwhile, envisages a rise to 120 yen from about 111 yen, on a widening US/Japan yield differential.

“In the U.S. bond space, we’re buying corporate bonds and mortgage-backed securities instead of Treasuries,” deputy general manager Toshinori Kurisu said.

“In Europe, we buy government bonds. In contrast to the dollar, currency hedge for the euro does not involve any costs, so European sovereign bonds remain attractive.”

The executives said Nipon Life would limit Japanese government bond (JGB) investment to a minimum in the year to March, though it would consider buying long-dtaed JGBs if yields on 20-year or 30-year notes rise to 1 percent or higher.

Yields on the 20-year JGBs, typically favoured by Japanese life insurers, currently stand around 0.57 percent.

Nippon Life, which has about 63 trillion yen ($565 billion) in assets, also said it plans to kick its overseas project finance investments into full gear this year.

($1=111.3900 yen)

Editing by David Goodman

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