TOKYO Fukoku Mutual Life Insurance plans to invest 500 billion yen ($4.59 billion) in higher-yielding assets over the next five years as global bond yields stay low, a senior company official said on Tuesday.
The insurer, which has 6.64 trillion yen in total assets as of December, will create a new fund this fiscal year to invest in high-yielding, riskier products over the next five years, Takehiko Watabe, general manager of investment planning, told Reuters.
Fukoku's strategy to increase holdings of foreign debt in 2010 without currency hedging is expected to help it earn profits as such bonds mature in years ahead. The dollar is trading close to 110 yen now, compared with 80 yen in 2010.
However, the Bank of Japan's negative interest rates would eat into profits after 2021 once the gains from its open foreign debt positions are fully realized, assuming the central bank maintains such a policy.
"Since we will be able to continue enjoying returns from the foreign exchange rate at least until 2020, we don't have to aggressively invest in foreign debt while credit spreads are tight," Watabe said.
But after the foreign debt's redemption is done in 2020, the insurer expects that the BOJ's negative interest rate policy will likely start hurting its assets.
"We need to start taking a countermeasure while we are lucrative," Watabe said.
Watabe also said that the insurer will likely invest mainly in foreign corporate debt, but said anything with higher yields such as foreign equities, is also possible.
"Even the 20-year JGB yield is trading around 0.6 percent now... it would be nice if our fund managers in each asset class can hunt for at least an additional 1 percent yield," Watabe said.
For this fiscal year through March 2018, the insurer expects a much smaller increase in total investment than the previous year. It expects to buy 50 billion yen in foreign debt, compared with 150 billion yen during the last fiscal year ended March.
"The current hedging cost is more than 1.5 percent, so we won't be hunting for U.S. Treasury yields which are around 2.2 percent," he said.
If the dollar falls further against the yen, Fukoku may buy foreign debt without currency hedging, he added.
Meanwhile, Fukoku will reduce holdings of Japanese government and corporate bonds by 40 billion yen this fiscal year, having invested 60 billion yen in this category last fiscal year.
Fukoku expects the Nikkei to trade between 17,500 and 21,000 points this fiscal year. It ended at 18,418.59 on Tuesday.
It expects the U.S. benchmark 10-year Treasury yield to move between 2.3 percent and 2.9 percent, compared with 2.244 percent on Monday, and the 10-year JGB yield between negative 0.10 percent and 0.15 percent, against 0.010 percent on Tuesday.
It predicts the 20-year JGB yield to fluctuate between 0.40 percent and 0.9 percent.
Fukoku sees the dollar trading between 100 and 120 yen, versus 109.08 yen, while the euro is seen trading between 110 and 130 yen, compared with 116.06 yen.
(Editing by Sam Holmes)