Meiji Yasuda Life Insurance is anticipated to delay its purchase of Japan's super-long sovereign bonds until there is a rise in yields.
These bonds, which have a maturity of over 10 years, are a key investment for Japanese life insurers, especially towards the end of the fiscal year. However, the current declining yields, including the drop in the benchmark 30-year securities to 1.58% from a high of about 1.9% in November, have dampened investor enthusiasm.
A Bloomberg report noted that factors such as speculation around an early interest rate cut by the Federal Reserve and the recent earthquake in Ishikawa Prefecture, which has reduced expectations of the Bank of Japan ending its negative-interest rate policy soon, have also influenced bond yields. The swap markets currently indicate only a 5% chance of a rate hike at the Bank of Japan's March meeting, a significant decrease from 70% a month earlier.
Kenichiro Kitamura, the general manager of investment planning and research at Meiji Yasuda Life Insurance, which holds assets totalling JPY46 trillion, stated in a recent interview that the company is in no hurry to buy these bonds.
“If the BOJ won’t do anything, it is also okay for us not to do anything as well,” Kitamura said in an interview.
Despite plans outlined in October to increase yen debt and non-hedged overseas bond holdings in the second half of fiscal 2023, Kitamura suggested that these purchases might be postponed. He emphasised that the company would only buy bonds when yields rise, indicating a cautious approach to these investments.
Meiji Yasuda had previously increased its holdings in foreign sovereign and corporate bonds when US long-term yields were higher. This move has now positioned the company comfortably, allowing it to delay further purchases.
Kitamura also commented on the potential impact of the US presidential election on bond yields, noting that a victory for Donald Trump could lead to lower borrowing costs and a weaker dollar, influencing Japanese yields.
Despite not expecting an imminent removal of sub-zero interest rates and yield-curve control by the Bank of Japan, Kitamura anticipates these changes will eventually occur, leading to fewer bond purchases by the central bank and a boost in local yields. He expects the negative interest rate policy to end in April.
Kitamura also mentioned that life insurers are well-prepared for upcoming regulations, suggesting a medium- to long-term upward trend in yields for super-long bonds. He views fiscal 2024 as a crucial year to assess the predominant market forces, predicting possible increases in the 10-year yield to around 1% and the 30-year yield to near 2%.
Finally, Kitamura noted that the company's investments have been performing well, supported by rising equity prices, a weak yen, and falling hedging costs.
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