April 16, 2018 / 7:06 AM / 10 months ago

UPDATE 1-Japan's Fukoku Life set to invest $2.05 bln in open foreign bonds this FY

(Adds investment details, quotes)

By Ayai Tomisawa and Daiki Iga

TOKYO, April 16 (Reuters) - Fukoku Mutual Life Insurance plans to invest 220 billion yen ($2.05 billion) in open foreign bonds, particularly in Australian and Canadian dollar-denominated bonds, in this fiscal year as hedging costs remain high, a senior company executive said on Monday.

Fukoku, which had 6.77 trillion yen in total assets as of December, expects to reduce investments in foreign bonds with currency hedging by 110 billion yen, Takehiko Watabe, director and general manager of investment planning, told Reuters in an interview.

Last fiscal year, the insurer spent 420 billion yen buying open foreign bonds, while it reduced bonds with currency hedging by 310 billion yen.

“As hedge costs rose on the back of the U.S. rate hike, we sold low-yielding products and bought open foreign bonds,” Watabe said.

“We invested in open Australian and Canadian dollar-denominated bonds. We reduced euro and sterling-denominated bonds, but the asset we cut the most was U.S. dollar-denominated debt.”

Fukoku said last year it would spend 500 billion yen to create a new fund that would invest in high-yielding, riskier products over the next five years. Last fiscal year, the insurer invested 120 billion yen in this category.

“This fund is one of the factors which contributed to our profitability,” Watabe said.

The insurer will also reduce its holdings of Japanese government and corporate bonds by 40 billion yen this fiscal year amid a low-yielding environment, while it also plans to cut domestic equities by 10 billion yen.

“We expect that the stock market to perform a tad better than the current level, but we probably won’t see a weak yen helping stocks much like in the past,” Watabe said, adding that the insurer expects the Nikkei share average to trade between 19,000-25,000 this fiscal year.

Fukoku, on the other hand, plans to invest a total of 40 billion yen in foreign stocks - 20 billion yen each in equities and funds linked to corporate debt.

It expects the U.S. benchmark 10-year Treasury yield to move between 2.4 percent and 3.2 percent, and the 10-year JGB yield to trade between minus 0.10 percent and 0.15 percent.

The insurer expects the dollar to trade between 98 yen and 116 yen this financial year. ($1 = 107.1500 yen) (Reporting by Ayai Tomisawa and Daiki Iga; Editing by Gopakumar Warrier)

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