Japan's Asahi Life plans to increase its foreign bond holdings in the current business year to next March and may trim its currency hedging against them if rate hike expectations rise in Europe and the United States, a senior executive said on Thursday.
The country's seventh-largest private life insurer, with total assets around 5.6 trillion yen ($67.9 billion), also said it could raise the weightings of euro-denominated bonds in its foreign bond investments even though dollar bonds will remain its core assets.
Asahi Life also plans to increase its holdings of yen bonds by 100 billion yen this business year, after an increase of 190 billion yen in the previous year, Hiroki Kimura, general manager of asset allocation at Asahi Life, told Reuters in an interview.
The company believes that both the dollar and the euro will strengthen against the yen, on expectations of rate hikes by the Federal Reserve and the European Central Bank. "Right now we are more than 90 percent hedged. This could perhaps fall to 80 percent or even to a bit less, depending on interest rate outlooks," Kimura said.
The company puts the dollar's trading range for the current year at 78-95 yen and expects it to strengthen to around 87-88 yen by the end of the financial year in March. The dollar traded at 82.23 yen on Thursday. Higher interest rates on the dollar and the euro not only tend to lift their values against the low-yielding yen, they also raise the cost of currency hedging for Japanese insurers, making unhedged investment more attractive.
As of September, the company held about 300 billion yen of foreign currency bonds. While a large part of the company's foreign bond portfolio will be in dollars, the insurer could increase its exposure to euro zone debt, Kimura added.
"At the moment, about 80 percent of our foreign bonds are in dollars ... We don't plan to drastically change our weightings but there could be an impression that our weighting in dollars is too high. So it is possible that weighting in dollars falls to, say, around 70 percent," Kimura said. In the euro area, Asahi Life mostly buys German and French sovereign bonds, he added.
The insurer is also looking to reduce its holdings of Japanese shares, although it did not specify a target. As of last September, it held about 300 billion yen of Japanese shares, less than 8 percent of its securities investment. Kimura said the company expected Japan's economy to continue suffering for the time being from damage from last month's devastating earthquake.
"There are downside risks to Japanese shares after the disaster, although we expect Japanese shares to gradually recover in the second half of the business year," he said. The company will continue to increase its yen fixed income holdings to match its long-term liabilities in the yen, to bolster its financial health gauges.
Comments
Comments are closed.