Asahi Mutual Life Insurance Co. has diverted some of its 2025 investment outlay to domestic notes from foreign bonds as Japan’s interest rates rise to attractive levels.
The insurer has raised its exposure to Japanese domestic bonds by ¥50 billion in the current fiscal year, Nobuaki Uchimura, head of asset allocation and planning department, said in an interview on Aug. 20. It originally intended to reduce yen bond holdings by ¥45 billion.
“Yen bond yields are at a level that offers some appeal, including for ultra-long-term bonds, and there is a possibility of further increases due to concerns over the Bank of Japan’s normalization of monetary policy and fiscal policy,” said Uchimura. He added that if yields rise further in the second half of the financial year, the company will consider shifting funds from foreign bonds to yen-denominated debt.
A weak Japanese 20-year sovereign bond auction on Aug. 19 triggered a broader selloff in the market, pushing up yields across the board with marked moves seen in longer tenors. In addition to expectations that the BOJ will hike rates by year-end, the risk is also growing that the government will issue more bonds to fund fiscal expansion.
Although many life insurance companies are refraining from aggressive government bond purchases as regulatory compliance-related buying has run its course, some are taking advantage of the recent climb in yields to increase their holdings.
Asahi Mutual expects the BOJ to raise interest rates again as early as October, and the US to resume lowering interest rates in September, with two reductions likely by the end of the year, said Uchimura.
Swap markets show the chance of a US rate cut in September is hovering around the mid-80% range. The probability of a BOJ rate increase by October is in the mid-40% range, with a probability of over 70% for a hike by the end of the year.
Although the BOJ’s review of its pace of government bond purchases and the Finance Ministry’s issuance reduction have “calmed the situation somewhat, uncertainty regarding the supply and demand for ultra-long-term bonds remains,” Uchimura said.
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