Japanese Insurers Focus On US Treasuries

May 26, 2017 – Big Japanese life insurers, who are major bond investors globally, are primarily focusing on U.S. bonds while staying cautious on European bonds, earning reports and comments from industry executives show.

U.S. bonds have become more attractive as some Japanese insurers have been able to earn extra income by lending these to Japanese banks, which in turn use Treasuries as collateral to raise dollars in repo markets.

Nippon Life , Dai-ichi Life , Meiji Yasuda Life , Sumitomo Life and formerly state-owned Japan Post Insurance collectively manage more than US$2 trillion of financial assets.

Earnings disclosures published in the past two weeks showed U.S. bonds accounted for a large part of the increase in their foreign bond holdings during the financial year that ended on March 31.

The five insurers increased foreign bond holdings by a combined 6.3 trillion yen (US$56 billion). Of the total, they increased dollar bonds by 4.8 trillion yen (US$43 billion), to 26.8 trillion yen.

Euro bond ownership increased at only one-tenth the pace that U.S. bonds did. Euro bonds rose 488 billion yen (3.9 billion euros), with outstanding in March 2017 at 7.0 trillion yen.

In early 2016, French bonds were popular among Japanese investors, especially banks. But early this year, worries about the coming presidential election triggered a sell-off in French paper bonds, causing big losses among investors.

Motohiko Sato, manager of investment planning at Meiji Yasuda Life, said his firm will continue to invest largely in U.S. bonds because French bond yields are not attractive.

To be sure, investors also suffered losses on U.S. bonds when Donald Trump’s surprise victory in November’s presidential election sparked a sell-off. But the subsequent recovery in U.S. bond prices has helped whet appetites.

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