Japan’s Fukoku Mutual Life Insurance Co. is maintaining an elevated cash position as a buffer against volatile global markets and concerns about rising government spending in the country. Fukoku, which is the first life insurer in Japan to outline plans for the fiscal second half, also sees scope to move a bit more from foreign bonds into yen bonds as yields rose more than expected. Following last fiscal year’s large-scale move, the insurer expects any further shift would be moderate unless yields rise significantly beyond its projected range. Investment decisions by Japan’s life insurers are closely tracked globally as their invested assets total about ¥386 trillion ($2.4 trillion), according to the end-July data from the Life Insurance Association of Japan. Investors will also be closely watching other insurers’ strategies as they are unveiled in the coming weeks.
“Market uncertainty has deepened since the beginning of the year, so we don’t have enough conviction to draw down cash and allocate it to specific assets,” Yusuke Onodera, executive officer of the investment planning department at Fukoku, told Bloomberg News in an interview. “We want to remain cautious and maintain a position that allows us to move quickly in the event of sudden market swings.” Cash and deposits are currently about 6% of the insurer’s general account assets, higher than the historical range of 2-3%, according to the company. Japan’s super-long bonds have been under pressure due to inflation concerns triggered by the US-Iran war, worries about worsening government finances globally and Prime Minister Sanae Takaichi’s fiscal plans. Takaichi is seeking to enact a bill to cut the sales tax on food and soft drinks, while questions remain over how the resulting revenue shortfall will be funded without the issuance of additional debt.
“Concerns about fiscal expansion haven’t been dispelled, and upward pressure on yields remains,” Onodera said. Uncertainty is likely to persist, particularly until next fiscal year’s budget and the amount of new government bond issuance become clear toward year-end, he said. Fukoku has also lowered this fiscal year’s target for increasing Japanese government bond holdings to ¥80 billion, Onodera said. This compares with its plan in April to raise the holdings by ¥110 billion. “Following the build-up of sufficient capital, we decided not to refinance maturing subordinated debt, which reduced the amount of new money available for investment,” Onodera said. “There has been no change in our investment strategy, which focuses on yen bonds.” Fukoku expects the 10-year JGB yield to trade in the 2.7-3.5% range in the second half of the fiscal year, and sees the yield at 3.3% at the end of the fiscal year. The yield on the bonds was around 2.94% on Friday morning, after it rose last month to the highest level since 1996.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing