Nippon Life expects the Bank of Japan to raise interest rates twice this financial year, while the US Federal Reserve is seen cutting rates twice in the same period.
Nippon Life Insurance Co., Japan's largest life insurer, plans to pare its holdings of yen-denominated bonds this fiscal year as it continues shifting from low-yielding debt securities to those with higher returns.
In the risk scenario that the Middle East conflict persists, "there would be upward pressure on inflation and long-term yields," said Daisuke Ishida, executive officer of the finance and investment planning department at Nippon Life, at a briefing on Wednesday.
"We plan to reduce the overall portfolio through the sale of low-yielding assets and the rollover of government bonds," he said.
In the fiscal year ended in March, the insurer lowered its holdings of domestic bonds by around ¥1.91 trillion ($12 billion), while carrying out about ¥3.9 trillion in portfolio shifts from low-yielding to higher-yielding notes. Ishida said that the scale of reductions and replacements in holdings would not be as large this year.
Investment decisions by Japan's life insurers are closely tracked as they can move global markets. Fukoku Mutual Life Insurance Co. plans to slow purchases of Japanese government debt this fiscal year, while Dai-ichi Life Insurance Co. will swap low-yielding yen-denominated bonds for higher-yielding ones as it keeps overall holdings steady.
Unrealized losses on domestic bonds at Nippon Life climbed to ¥5.73 trillion as of the end of March, increasing ¥2.13 trillion from a year earlier. The insurer offset the ¥1.35 trillion of losses from the sale of yen bonds during the previous fiscal year against profits made by selling some of its equity investments, minimizing the overall impact on earnings, Ishida said.
Nippon Life expects the Bank of Japan to raise interest rates twice this financial year, while the US Federal Reserve is seen cutting rates twice in the same period. Under its base-case assumption that tensions in the Middle East stabilize, the BOJ is seen proceeding with gradual rate hikes.
| Forecast range for end-March 2027 | Japan 10-year yield | US 10-year yield | Nikkei | Dow | USD/JPY | EUR/JPY |
|---|---|---|---|---|---|---|
| 2%-3% | 3.6%-5% | 42,000-68,000 | 43,000-63,000 | 145-170 | 165-200 |