Japan Post Insurance to invest less in JGBs in 2011/12

Japan Post Insurance plans to trim its investment in Japanese government bonds in the current financial year as it seeks higher returns by buying more corporate and regional bonds, a senior company official said on Friday. State-owned Japan Post's insurance arm holds 95.75 trillion yen ($1.16 trillion) in assets under management, bigger than Australia's economy, which is the world's 13th largest.
The insurer, also known as Kampo Insurance, expects JGB yields to stay low due to concerns over the outlook for the economy, despite mounting speculation over potential increases in bond issuance to fund a budget for rebuilding the northern part of Japan after the March 11 earthquake.
"We'll focus our investments on buying the superlong sectors of JGBs. On top of that, we want to invest in regional and corporate bonds to seek higher returns," Mitsuya Watanabe, general manager at the insurer's investment planning section, told Reuters in an interview.
Japan Post plans to invest a total of 7.1 trillion yen ($86.75 billion) in the financial year that began on April 1, little changed from the previous year, Watanabe said.
Of the total, 5.3 trillion yen will go into JGBs in 2011/12, down 500 billion yen from last year, while it plans to raise its investment in municipal and corporate bonds by 500 billion yen to 1.8 trillion yen, Watanabe said.
The insurer forecast the yield on key 10 year JGBs would range between around 1.0 and 1.5 percent. It was about 1.210 percent on Friday.
"It looks like (the government) will take account of fiscal discipline when crafting budgets, so I believe JGB yields are unlikely to jump," Watanabe said.
"We ... have to see details on the second extra budget, such as its timing and size. Still, I believe the issuer, the Ministry of Finance, will communicate with the market closely, so I don't think we'll see a major mismatch of supply and demand balance in the market."
Watanabe said expectations of more JGB issuance would help limit falls in government bond yields. As JGB yields are expected to be stuck at low levels, the insurer wants to allocate as much as possible to municipal and corporate bonds, and is especially keen on investing in the 10-year sector.