Japan Post Insurance will invest $3.2 billion more in regional and corporate bonds this financial year than last and plans to pick up domestic stocks to win higher returns, a senior company official said. State-owned Japan Post's insurance arm, which holds 98.9 trillion yen ($1.06 trillion) in assets - equivalent to the size of Australia's GDP - is a major force especially in the yen bond market.
Japan Post Insurance, also known as Kampo Insurance, is facing a tougher environment in fixed income investment due to growing concerns over deflation in the world's second-largest economy, undermining Japanese government bond yields low and corporate and municipal bond spreads tight.
The insurer will continue efforts to lengthen its durations for JGBs by investing more in the 20- and 30-year sectors, he said. Watanabe said he expects the benchmark 10-year JGB to yield 1.2 to 1.6 percent this year.
The insurer's investment plans overall will rise by 300 billion yen to 7.1 trillion yen in the financial year that began in April from last year, Watanabe said.
Of that, 5.8 trillion yen will go into JGBs in 2010/11, unchanged from last year, he said. As of the end of February, it held 67.5 trillion yen of its total assets in Japanese government bonds, which accounted about 68.2 percent of the total portfolio. Its JGB holdings were about 69.8 trillion yen in March last year.
The insurer's corporate bond holdings totalled 7.3 trillion yen, accounting for 7.4 percent of its total portfolio, in February. Its holdings of regional bonds were 5.05 trillion yen, making up 5.1 percent of the portfolio.
But Japan Post Insurance could face a tough time raising returns in regional and corporate bonds with their spreads narrowing. The Tokyo government launched 60 billion yen of 10-year bonds on April 15. The spread of the bonds was only 3.5 basis points over 10-year JGBs. This compares with the spread of 14 basis points on an issue offered around the same period last year.