Meiji Yasuda Life to shun superlong Japanese debt for year or more
Fiscal expansion concerns propelled Japanese government bond yields on Monday ahead of the Upper House election later this month, adding further momentum to a rise stoked by a view that inflation is quicker than the central bank's expectations.
"The Bank of Japan will continue to raise interest rates,' Kenichiro Kitamura, Meiji Yasuda's operating officer and general manager of investment planning and research department, said in an interview last week, while predicting that 30-year bond yields, currently at just below 3%, could rise to 3.2% to 3.3% by fiscal 2026.
"When the peak becomes apparent, it will be a good time to buy, but now is not the right time,' he added.
Instead, the company is considering hedged foreign bonds as an alternative investment.
U.S. interest rates are at high levels and there is room for yields to decline as the Federal Reserve may cut rates, and "considering the risk of yen appreciation due to the narrowing U.S.-Japan interest rate differential, hedged foreign bonds are a viable option,' Kitamura said.
Japanese life insurance companies, which were expected to fill the void left by a retreating BOJ as buyers of the country's long-term debt, are holding off on significant purchases as further interest rate hikes loom.
Life insurance companies' appetite for superlong-term bonds has been declining and purchases have slowed significantly over the past few years after their buying streak to meet new solvency rules.
Meiji Yasuda may gradually see its appetite for duration make a comeback as it seeks to match its long-dated liabilities on account of new product launches.
In April, the insurer launched a new group pension product with an increased scheduled interest rate. It also raised the scheduled interest rate for individual savings insurance products and is focusing on acquiring new insurance contracts.
"As insurance liabilities increase, we will invest in ultra-long-term bonds,' said Kitamura.
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