Japan Life Insurers' Investments in Foreign Assets Hurt Value of Yen

"The rising outward investment from Japan is a reason why the yen hasn't strengthened even when there was bad news for the markets," said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. "Japanese investors have no choice but to go abroad to benefit from faster growth rates."

Japan's life insurers held 377.8 trillion yen ($3.4 trillion) of assets at the end of June. The ratio of foreign assets was 18% as of June 2016. A separate balance-of-payments report earlier this month showed the firms bought twice as many bonds as equities overseas during the second quarter.

The purchases are steadily sapping the yen's haven status. The correlation between the dollar-yen exchange rate and implied volatility on the S&P 500 Index has fallen to minus 0.22 from minus 0.60 in mid-2016, according to data compiled by Bloomberg.

— Read Bump in Japanese Government Bond Yields Leaves Life Insurers Wanting More, on ThinkAdvisor.

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