For all the frenzy over the Bank of Japan’s first policy tweak in almost two years, little seems to have changed for the nation’s life insurers.
That’s because the rise in long-end government bond yields seen after the central bank’s July 31 decision has proved to be fleeting, giving no incentive to the likes of Meiji Yasuda Life Insurance Co., Nippon Life Insurance Co. and Fukoku Mutual Life Insurance Co. to bring home some of the funds locked overseas.
Global markets have been riveted by how high yields on Japanese bonds may climb after Governor Haruhiko Kuroda doubled the trading range allowed for the benchmark 10-year yield. Insurers are clearly signaling that a tidal change in the Asian nation’s money flow won’t come until the central bank lowers purchases of super-long debt.
“There are more things that the BOJ could do before changing the 10-year yield,” Motohiko Sato, general manager for investment planning and research at Meiji Yasuda, said in an interview in Tokyo. “It would be helpful if super-long bond purchases are reduced further.”
The BOJ on its part has been tapering its debt purchases at a moderate pace amid criticism that its operations have distorted the market. It has trimmed buying of bonds maturing in more than 10 years at an annualized pace of 13% this year, after slashing it by 17% in 2017, according to Bloomberg calculations.
However, that isn’t enough for life insurers, given how the BOJ stuck to its target of expanding bond holdings by 80 trillion yen ($725 billion) annually at its end-July policy decision, and gave no indication of further cuts in super-long JGBs.
The BOJ maintained purchases of securities in the five-to-10 and 10-to-25 year maturity zones and also those due in more than 25 years at its regular operation on Wednesday.
The 30-year yield is now just two basis points higher than its close on July 30, the day before the BOJ announced its rate decision. Insurers watch this tenor closely to match their long-term liabilities, making BOJ’s actions at the longer-end of the curve more relevant for them than what it does at the short end. Japanese investors have about $2.4 trillion invested in overseas debt.
At 0.845% on Wednesday, the 30-year yield has climbed from the 0.665% level seen in early July, which was its lowest since December 2016. However, it is still below the more than 1% level that Nippon Life — Japan’s largest private life insurer — said in April was needed to make it easier for it to buy these bonds as against investing overseas.
“We are glad to see some gains in bond yields, but there isn’t any promise for a full-fledged rise,” Toshinori Kurisu, deputy general manager at Nippon Life’s finance and investment planning department, said in an interview. While the 20-year and 30-year yields have climbed, the “yield curve could have been steeper if super-long bond purchases had been cut further.”