Market players expect new Bank of Japan (BOJ) Governor Kazuo Ueda is likely to keep monetary settings ultra-loose at his debut policy meeting which ends on Friday. But they think a change in the BOJ's yield curve control policy, which keeps the benchmark 10-year government bond yield below 0.5%, is likely at the June policy meeting.
Nippon Life Insurance, Meiji Yasuda Life Insurance and Sumitomo Life Insurance said they would steadily increase JGBs purchases if yields rise, driven by a possible tweak in the BOJ's policy. "With a change in the YCC policy in sight, we will start buying JGBs slowly, and buy more when the yields rise," said Akira Tsuzuki, executive officer, finance and investment planning at Nippon Life, known as Nissay.
Changes in the BOJ's yield curve control (YCC) policy could include widening the trading band of the 10-year bonds, moving the target of the bond duration or abolishing the policy all together. Other lifers plan to continue buying JGBs steadily, regardless of the timing of the BOJ's policy shift.
"We are not going to wait for the BOJ to abolish the YCC policy. We will buy JGBs evenly," said Yoshiyuki Suzuki, general manager at Fukoku Mutual Life Insurance.
Some lifers are considering buying 30-year JGBs when the yield , which was last at 1.335%, crosses 1.5%.
"We could boost the allocation of the 30-year bonds if the yield rises above 1.5%," said Mitsuo Masuda, head of the investment planning department at Sumitomo Life. Insurers are cautious about buying currency-hedged foreign bonds because hedging costs have risen. They plan to cover the costs by selling sovereign bonds and buying foreign corporate bonds with higher spreads.
Taiyo Life Insurance plans to buy U.S. and European corporate bonds with investment grades whose spread is as thick as 150 basis points, to cover hedging costs, said Yoshitaka Kiyotomo, executive officer and general manager at investment planning department of the insurer. They are among 10 insurers which detailed their investment plans for the fiscal year ending March at briefings and interviews over the past several days.
(Reporting by Tomo Uetake and Tokyo markets team; Writing by Junko Fujita; Editing by Kim Coghill)
