Tokio Marine plans increase in FX-hedged foreign bonds

The firm increased such foreign bonds by about 50 billion yen in the first financial half year to September.

By: Reuters | Tokyo | Published:October 26, 2016 3:15 pm

Tokio Marine & Nichido Fire Insurance plans to increase its holdings of currency-hedged foreign bonds in the October-March period by around 50 billion yen ($480 million), an investment planning official at the firm said on Wednesday.

The Japanese insurer, a unit of Tokio Marine Holdings Inc , does not plan to increase holdings of domestic bonds as their yields remain unattractive, Shuntaro Take, head of portfolio investment, told Reuters in an interview.

Like many other Japanese institutional investors, Tokio Marine, which holds total assets of 9.2 trillion yen ($88 billion), is shifting its funds to foreign bonds as an alternative to low-yielding Japanese government bonds.

The firm increased such foreign bonds by about 50 billion yen in the first financial half year to September and is on course to boost the holding by a total of around 100 billion yen in the year to March, Take said.

Among foreign bonds, the insurer is buying U.S. credit products as well as investment grade corporate bonds in the euro zone, he added.

The firm is basically putting currency hedge on its foreign bond investment, as it does not expect the yen to weaken.

Take said the yen’s weakening phase in 2013-2015 is clearly over.

“In addition, from the start of this year, it’s becoming clear that the U.S. administration no longer seems to tolerate a weaker dollar. So it’s hard to expect the yen to weaken,” he added.

The firm expects the dollar to stand around 100 yen in March. On Wednesday, it traded at 104.20 yen, above its low of 99.00 hit in the aftermath of the Briain’s vote to quit the European Union.

Although returns on currency-hedged foreign bonds have been falling largely because of rising hedging costs, Tokio Marine is not considering putting money back in Japanese bonds, Take also said.

Domestic bond yields are still unattractive, he said, even after the BOJ revamped its easing programme in September by introducing a target in the 10-year government bond yield at zero percent, well above record lows touched earlier this year.

“We welcome the move as we were thinking that the BOJ would soon reach its limit in achieving its quantitative easing target. But JGB yields are still too low for investors like us,” he said.