(March 3): Japan Post Insurance Co plans to sell holdings of lower-yielding government bonds and replace them with higher-yielding debt on expectations for further interest-rate hikes, according to its chief executive officer.
The life insurer expects the Bank of Japan (BOJ) to raise interest rates again as soon as April. It’s one of the nation’s biggest insurers and held ¥50.35 trillion in securities at the end of last year. As Japanese bond yields jumped in the final quarter of last year, the firm’s valuation losses on domestic notes widened about 30% in the three months to ¥4.39 trillion.
“It’s important to make adjustments in light of rising interest rates, to legitimately benefit from the rate hikes,” said CEO and president Kunio Tanigaki in an interview on Feb 27. Market interest rates “will continue to rise in the near future”, he said.
The insurer hasn’t changed its rate outlook since the eruption of the conflict in the Middle East over the weekend, a spokesperson said on Tuesday.
Life insurers like Japan Post are having to consider what to do with bonds they bought before the BOJ ended its super-easy monetary policy in March 2024, and some have said they are selling those off and replacing them with higher-yielding debt. While the Middle East turmoil has reinforced market expectations that the central bank won’t lift rates this month, swap rates suggest about 65% odds of a hike by the April meeting and certainty of a move by July.
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Yields on 30-year Japanese government bonds, a major investment target for insurers to match their long-term liabilities, have jumped about 1.5 percentage points since the BOJ started its current rate hike cycle.
Japan Post Insurance expects benchmark 10-year JGB yields to rise to 2.5% in the year starting April 1 as the BOJ hikes rates in response to inflationary pressure and the yen’s weakening, said Hiroyuki Nomura, senior general manager of the insurer’s investment planning department, in the same interview. The yield was about 2.1% on Tuesday.
Daiwa investment
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With a shrinking and ageing population pressuring its traditional businesses, Japan Post Insurance is trying to strengthen its asset management operations and diversify its revenue sources. As part of that effort, it invested in Daiwa Asset Management Co (Daiwa AM) in 2024. The insurer has entrusted more than ¥2 trillion for the Daiwa Securities group firm to oversee, exceeding its initial plan, and it’s dispatched personnel to Daiwa Asset Management’s New York base to get experience.
Tanigaki said he’d also like to send employees to the asset manager’s offices in London, Singapore and other locations to become more knowledgeable about the international market. His firm now has a 20% stake in Daiwa AM, but Tanigaki said, “we have been saying for a long time that we want to increase it.” The CEO said he will continue to discuss this with the asset manager and Daiwa Securities Group Inc.
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