Japan's life insurers are signaling that a tidal change in money flow back to Japan will not take place until the central bank lowers purchases of super-long debt, according to a report by Bloomberg.
Global markets have been riveted by how high yields on Japanese bonds may climb after the Bank of Japan's governor Haruhiko Kuroda doubled on 31 July the trading range allowed for the benchmark 10-year yield.
“There are more things that the BOJ could do before changing the 10-year yield,” Motohiko Sato, general manager for investment planning and research at Meiji Yasuda, said in an interview in Tokyo. “It would be helpful if super-long bond purchases are reduced further.”
The BOJ on its part has been tapering its debt purchases at a moderate pace amid criticism that its operations have distorted the market. It has trimmed buying of bonds maturing in more than 10 years at an annualised pace of 13% this year, after slashing it by 17% in 2017, according to Bloomberg calculations.
However, that isn’t enough for life insurers, given how the BOJ stuck to its target of expanding bond holdings by JPY80trn ($725bn) annually at its end-July policy decision, and gave no indication of further cuts in super-long Japanese government bonds.
Toshinori Kurisu, deputy general manager at Nippon Life’s finance and investment planning department, said in an interview, that while the 20-year and 30-year yields have climbed, the “yield curve could have been steeper if super-long bond purchases had been cut further”.
The BOJ should allow longer-maturity yields to rise as insurers will be there to buy once they reach attractive levels, Takehiko Watabe, executive officer at Fukoku, said.
Contrasting them with Japanese government bonds, yields on US securities are high enough to be attractive.