INTERVIEW-Japan Post chief says pullback from yen bonds 'unthinkable'
TOKYO, Sept 9 (Reuters) - Japan Post Holdings said it will not seek to move away from holding massive quantities of domestic government bonds despite pressure to improve returns ahead of an IPO in 2015, citing a 'social responsibility' not to roil the bond market.
Japan Post houses the nation's largest savings institution and its largest insurer, which together hold almost $2 trillion in Japanese government bonds. That makes the government-owned institution Japan's largest creditor, ahead of the central bank, which holds the equivalent of $1.6 trillion in debt after a buying spree that accelerated this year.
Japan Post President Taizo Nishimuro told Reuters he understood that a vow to keep JGB holdings unchanged even in the face of potentially better returns elsewhere conflicts with the institution's responsibility to maximize profit for investors and policy holders.
"It's a clear contradiction," Nishimuro, a former Toshiba Corp chairman and head of the Tokyo Stock Exchange, said in an interview. "Our thinking is that we have a mandate to maintain our holdings of Japanese government bonds."
The investment stance of Japan's public funds has come into focus in recent months as Prime Minister Shinzo Abe pursues a growth strategy aimed at lifting Japan out of years of deflation and sluggish growth, helped in large part by aggressive quantitative easing from the Bank of Japan.
Japan's national pension fund, another major JGB holder, is reviewing its investment stance and has indicated it could seek shift more money to equities and overseas assets to boost returns.
Nishimuro, who took his post in June, said Japan Post was not under any political pressure to keep its government bond investment steady. But he said it would not move in a way that threatened the success of the BOJ's quantitative easing or cause turmoil in the yen bond market.
"We do not want to get in the way of what the BOJ is attempting, and we have a social responsibility that means that would not be the right thing to do," Nishimuro said. "It would be unthinkable."
The near-record low yield on Japanese government bonds has driven other investors to seek better returns in other markets, particularly the United States.
Yields on 10-year U.S. Treasuries touched 3 percent last week for the first time since July 2011, while the yield on the 10-year JGB benchmark is just under 0.76 percent. In April, the yield touched a record of 0.32 percent in the immediate wake of the BOJ's easing.
Nishimuro, 77, said he admired the way that Japan's largest banks had built up their JGB positions in recent years and then pulled back this year as lending began to pick up and volatility in the yen bond market increased.
"I'm envious of that kind of dynamic approach, but we are too big, too big to move," he said.
Japan Post Insurance, widely known as Kampo, held about $890 billion in assets as of the end of June. Data released by the insurer shows that its foreign bond holdings rose 54 percent from November to June to total about $10 billion - or just over 1 trillion yen.
Japan Post Bank, known as Yucho, reported that it held about $181 billion, or 18.1 trillion yen of foreign bonds at end June, up from 11.9 trillion yen a year earlier.
Nishimuro said while those increases reflected prospects that foreign bonds will make higher returns, they do not indicate any shift out of Japanese government bonds.
The partial privatisation of Japan Post is expected to raise between $20 billion to $40 billion, bankers familiar with the deal have said. Japan Post has brought the timing of the deal ahead by about six months to the spring of 2015, reflecting an improved outlook for its insurance business.
(Editing by Kevin Krolicki and Edwina Gibbs)