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UPDATE 1-Sumitomo Life to invest in foreign bonds, corporate debt
April 25, 2017 / 7:21 AM / in 7 months

UPDATE 1-Sumitomo Life to invest in foreign bonds, corporate debt

* Plans to curb investment in JGBs amid low yields

* Plans to expand foreign bonds and other debt instruments (Adds official’s comments and detail)

By Taiga Uranaka

TOKYO, April 25 (Reuters) - Sumitomo Life Insurance Co plans to buy more of riskier but higher-return assets including aircraft finance loans, as yields on Japanese government bonds (JGBs) remain too low to meet promises to insurance policy holders.

“Our investment theme this financial year is to take appropriate risks and achieve solid returns,” Iwao Matsumoto, general manager for the insurer’s investment planning, told reporters at its investment strategy briefing on Tuesday.

For this fiscal year starting in April, Sumitomo Life plans to increase holdings of foreign bonds with currency hedges, while curbing investment in super-long JGBs.

Matsumoto said his company would consider buying 30-year JGBs if their yields rise beyond 1 percent. Yields on 30-year JGBs were moving at around 0.775 percent on Tuesday.

Sumitomo Life is Japan’s fourth-largest private-sector life insurer with about 30 trillion yen ($272.4 billion) in assets.

With more than $3.3 trillion in their investment portfolios, Japanese life insurers are among the country’s biggest institutional investors. Market watchers pay attention to how top insurers allocate money in their biannual investment strategy briefings.

Following the Bank of Japan’s massive stimulus measures launched in 2013, life insurers have effectively stopped buying JGBs, which had made up for the bulk of their investment.

Sumitomo Life and rival Japanese life insurers have been shifting into foreign assets, where the biggest challenge is how to secure enough returns even after paying for costs to hedge against the negative impact of currency swings.

Matsumoto said his company plans to expand investment in credit instruments, such as bank loan funds, aircraft finance loans and project finance, which generate big enough returns after deducting currency hedging costs.

Sumitomo Life would consider buying foreign bonds without currency hedging when the dollar falls below 110 yen, Matsumoto said. It expects the greenback to eventually be on a rising trend against the yen on the back of an increasing interest rate gap between the two countries.

Without hedging, foreign bond investments are subject to currency moves but insurers stand to gain if the dollar rises, as it pushes up the value of the investment when repatriated home and converted to yen.

$1 = 110.1200 yen Reporting by Taiga Uranaka; Editing by Chris Gallagher and Jacqueline Wong

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