INTERVIEW-Fukoku Life plans to buy JGBs worth 50 billion yen in H2
TOKYO, Oct 11 (Reuters) - Japan's Fukoku Mutual Life Insurance plans to buy domestic bonds worth up to 50 billion yen ($510 million) in the second half of this business year, with a further increase possible in foreign securities depending on market conditions, a senior official said on Friday.
Fukoku, Japan's eighth-largest insurer in terms of assets, bought foreign bonds worth 180 billion yen in the April-September first half, Takehiko Watabe, general manager of investment planning, told Reuters.
"Of the 180 billion yen, we had planned to invest 100 billion yen in JGBs, but we ended up buying U.S. Treasuries that are more liquid," Watabe said, adding that it wants to cautiously buy JGBs worth 50 billion yen in the second half.
"If yields on 20-year Japanese government bonds rise to 1.7-1.8 percent and liquidity rises, I may consider investing in them."
The insurer, which had 6.0264 trillion yen in total assets as of the end of June, hedges approximately 50 percent of its foreign asset purchases and plans to keep that ratio steady this fiscal year, Watabe said.
Despite the yen weakening in the first half, the insurer hedged approximately 60 percent against currency fluctuations of the newly purchased 180 billion yen in foreign bonds, he said.
"We don't think there will be a steep rise in the yen, but there may be a slight correction towards strengthening," he said.
He added that the cost of hedging is limited as dollar interest rates are low, which makes foreign bond investments attractive for Japanese portfolio managers.
A debt impasse in the world's largest economy has shut down the U.S. government for 10 days and rattled global financial markets with the threat that the country's $16.7 trillion borrowing limit will not be raised before an Oct. 17 deadline.
Although there are hopeful signals of progress toward averting a possible U.S. debt default, Watabe said that he may not increase U.S. Treasuries until uncertainty dissipates.
"We expect that a default will be avoided, but as long as there is a slight chance, we don't want to take a risk," he said. "We are prepared to make up for damage resulting from something expected, but we cannot do so on an unexpected incident."
For stocks, he plans to keep its holding of Japanese stocks at around 5 percent, but may increase foreign stocks depending on when the U.S. Federal Reserve starts tapering its bond-buying stimulus.
Fukoku expects the 10-year yield to range between 0.6 percent and 0.9 percent at the end of this fiscal year.
The insurer predicts the 20-year JGB yield to fluctuate between 1.45 percent and 1.85 percent at the end of the business year, compared with 1.505 percent on Friday.
Fukoku expects the dollar to buy between 95 and 105 yen at the end of the current fiscal year, compared with 98.51 yen on Friday. The euro will trade between 120 and 145 yen, Fukoku said, compared with 133.32 yen on Friday.
The insurer expects Tokyo's benchmark Nikkei average to trade between 13,500 and 16,000 by the end of the fiscal year. At 0424 GMT, the index was at 14,446.32 on Friday. ($1 = 98.0900 Japanese yen)
(Editing by Jacqueline Wong)