News — ChangeLab

Where will Japanese insurers put $2.9 trillion?

Japan's largest life insurers plan to reduce their foreign debt in 2023 and prioritize buying local bonds because of speculation over the Japanese central bank's policy change. Companies plan to reallocate their assets totaling 2.9 trillion dollars, as well as reduce the size of foreign funds because of increased costs for hedging. According to experts, at the end of February the share of foreign securities of large Japanese insurers declined to 24%, and government bonds, on the contrary, increased to 42%.

How do large insurers in Japan plan to redistribute their funds?

Fukoku Mutual Life Insurance plans to get rid of currency-hedged foreign debt because of the Fed's constant rate hikes. The problem is that Japanese investors have spent most of their profits from investing in U.S. debt on hedging costs. Therefore, analysts are advising Japanese investors to look at the Japanese equivalent, which will allow for a 1.3% return without the risk of currency fluctuations.

Nippon Life and Sumitomo Life Insurance Co. are gradually returning to bonds at home, thanks to their rising yields. Twenty-year government bonds, for example, are trading at about 1.1%, up from less than 0.8% a year ago. Leasing companies, in turn, are adding to their stocks of ultra-long debt for asset-liability management purposes, especially by April 2025, when Japan will have a new solvency regime in place.

Our analysts forecast that the Central Bank of Japan will start to normalize monetary policy in the near future, but a Fed rate cut is still unlikely. In this case, a persistent yield gap will form between Japan and foreign countries, which is likely to slow the pace of yen appreciation.