Japan: Life insurers unhurried about investing in foreign bonds
Source: Asia Insurance Review | Sep 2017
Japan Investment Management Life & Health
Japanese life insurers have stalled over plans to invest heavily in foreign bonds in the current fiscal year ending March 2018, as yields remain limited while the costs of covering currency exchange risks have grown.
Net foreign securities purchases by life insurers slowed to about JPY960 billion (US$8.55 billion) in the April-June quarter, the Finance Ministry said, a fall of nearly 70% from the corresponding quarter in 2016, shortly after the Bank of Japan introduced its negative-rate policy.
The few Japanese life insurers which remain open to foreign bond investment, note a lack of momentum, reported Nikkei Asian Review.
US long-term interest rates have not risen
One major factor is that US long-term interest rates have not risen as expected. The yield on 10-year treasury bonds has fallen to the 2.3% range since reaching about 2.6% in March. The prospect that the Federal Reserve will slow the pace of rate hikes has prevented a full-fledged increase in the benchmark treasury yield, weakening the appeal in terms of expected investment returns.
Higher costs of hedging against foreign exchange losses are also at play. Life insurers invest over the long haul while minimising risks because they serve customers under long-term contracts. So when buying foreign bonds, they usually opt to pay a premium for those with a currency hedge. A