October 22, 2018 / 8:31 AM / 10 months ago

INTERVIEW-Japan's Fukoku Life sets up 50 bln yen short-term fund to shield against volatility

* Short-term fund may be used to buy foreign and domestic stocks on the dips

* Fukoku may consider buying longer-dated JGBs in 2H amid global market uncertainty

By Ayai Tomisawa and Daiki Iga

TOKYO, Oct 22 (Reuters) - Fukoku Mutual Life Insurance has put 50 billion yen in a short-term fund and adopted a more conservative investment strategy for the second half of the fiscal year as it anticipates uncertainty over the global economy will make markets volatile.

“We secured profits in the first half, so for the second half, we decided to have an abundant short-term fund aside to play it safe,” Takehiko Watabe, director and general manager of investment planning at Fukoku, told Reuters in an interview.

The first half of performance was helped by the yen trading weaker than the 108 yen per dollar exchange rate that Fukoku had based its investments on. A weak yen is helpful for Japan’s export industries.

“If a strong yen environment arrives and dents the equity market, we would like to use that fund to buy battered foreign and domestic stocks on the dips,” Watabe said.

For the first half, Fukoku increased its holding of foreign bonds by 100 billion yen. About a half of this amount consists of U.S. bonds, while the other half is Australian and Canadian dollar denominated bonds, Watabe said.

As yields on U.S. government debt are rising and pushing up hedging cost, Watabe said that the insurer had bought the foreign bonds without hedging.

The insurer raised forecasts for Japanese government bond yields for the second half, on the back of rising U.S. yields.

It expects the 10-year JGB yield to trade between minus 0.10 percent and 0.20 percent, raising the upper end from a previously forecast 0.15 percent.

It expects the 20-year JGB yield to trade between 0.5 percent and 0.90 percent.

It reduced its holdings of Japanese government and corporate bonds by 30 billion yen in the first half amid a low-yielding environment.

But while the 30-year yield hit a 1-1/2-year high of 0.95 percent earlier this year, Watabe said that he would not rule out investment in superlong bonds for the second half of the financial year.

“The yields aren’t high enough for investment for now. But with a global trade war clouding the outlook for the world economy, we may think about buying long-dated Japanese bonds on a process-eliminating investment option,” Watabe said.

Outsourcing investment in foreign stocks to U.S.-based Payden & Rygel, Fukoku increased holding by 10 billion yen, picking stocks with high yields.

Fukoku expects the U.S. benchmark 10-year Treasury yield to move between 2.7 percent and 3.5 percent and the dollar to trade between 100 yen and 118 yen in the second half.

On Friday, benchmark 10-year Treasury yield was 3.200 percent, compared to a 7-1/2 year peak of 3.261 percent hit earlier this month.

The dollar traded at 112.71 yen on Monday. (Reporting by Ayai Tomisawa and Daiki Iga; Editing by Simon Cameron-Moore)

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