Japan’s Meiji Yasuda Life plans to increase its investment in foreign bonds, focusing on dollar debt, with its confidence in U.S. Treasuries unshaken by the threat of a credit downgrade, a top executive said on Tuesday.
Japan’s third-largest private life insurer, with total assets of 26 trillion yen ($314.5 billion), said it plans to increase its holdings of foreign bonds that are not currency-hedged by 170 billion yen in the 2011/12 fiscal year that began on April 1.
“U.S. President (Barack) Obama is saying he is serious about fiscal reform. U.S. Treasuries are the world’s largest bond market and our confidence is unshaken,” Yasuharu Takamatsu, Meiji Yasuda’s director of investments, told a news conference.
“How we will invest depends on yield levels and, more importantly, currency levels. But we won’t change our initial investment plan,” he added, when asked about the impact of Standard and Poor’s cut in its rating outlook on U.S. sovereign debt on Monday.
The insurer expects U.S. yields to gradually climb in line with improvements in the U.S. Economy, to around 4.1 percent next March from about 3.3 percent now.
Meiji Yasuda has been warming to foreign bonds in the past year. The company said it increased un-hedged foreign bond holdings by 500 billion yen in the last financial year as it sees limited risk in the yen’s rise.
Although the company has not yet disclosed a currency breakdown of its foreign-denominated assets for the end of March, as of last September about 90 percent of its foreign assets were in dollars — the highest ratio among Japan’s top nine life insurers.
The company has a cautious view on the euro, saying the common currency’s rally driven by expectations of European Central Bank rate hikes was likely to run its course soon.
The currency will again come under pressure from worries about debt problems in the euro zone’s periphery countries, as well as concerns that fiscal tightening could slow growth, the company said.
Meiji Yasuda also said the yen is likely to fall for the time being because the Bank of Japan is expected to be the last major central bank to look to exit its stimulative policies.
Meiji Yasuda also said it plans to boost its yen bond holdings by around 1 trillion yen in the current financial year while extending the duration of the maturities.
In the year that ended on March 31, the company increased its Japanese bond holdings by 2 trillion yen.
It also raised its foreign-denominated bond holdings with currency hedging by around 140 billion yen, the company said.
For Japanese life insurers, foreign bond buying with currency hedging is an attractive alternative to low-yielding yen bonds.
Meiji Yasuda said the company could increase its holding of hedged foreign bonds if Japanese yields fall too much.
Takamatsu added that the insurer would trim its holdings of Japanese stocks and alternative investments, as it tries to limit its exposure to risky assets.
Japanese insurers have been reducing Japanese shares for many years ahead of the introduction this financial year of new government regulations that raise the risk weighting on stocks and other risky assets that insurers hold.
The company also said it held both bonds and shares of Tokyo Electric Power Co., the operator of a crippled nuclear power plant in Fukushima.
Meiji Yasuda said it planned to hold the utility’s bonds to maturity as it expects the company to receive government support, given its importance as an operator of vital infrastructure.
($1 = 82.675 Japanese Yen)
(Reporting by Hideyuki Sano; Editing by Edmund Klamann and Joseph Radford)
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