31 Oct 2013
Flash: Japanese lifers likely to be dip buyers of USDJPY - Nomura
FXstreet.com (Barcelona) - After the publication of all nine main Japanese life insurance investment plans for the second half of FY2013, Yujiro Goto, FX Strategist at Nomura, notes they will likely be dip buyers in USD/JPY.
Key Quotes
"As their liabilities are mostly JPY denominated, it is reasonable to expect them to prefer JPY-denominated assets, and regulations encourage them to invest mainly in risk-free JGBs."
"At the same time, the lower end of their assumed 10yr JGB range is 0.50-0.65% and the current level of JGB yields is at their lowest assumed ranges. Thus, they are likely to be reluctant to increase JGB exposure at current yield levels."
"In fact, some managers said that they need to be cautious about accumulating JGBs for now, as yields remain low. Thus, they may have to consider diversifying their assets from JGBs into other asset classes."
"Lifers’ only realistic alternative assets to JGBs currently are foreign bonds, in our view. Lifers' foreign bond investment activity was unusually low during the first half of FY2013, but we expect their activity to accelerate."
"Currency-hedged foreign bond investment will be the main alternative to JGBs, and current low hedge costs justify
hedged-based investment. Nonetheless, their assumed USDJPY level as of end-FY2013 is mostly 100 or above 100, and we believe they expect JPY to weaken against major currencies in the medium term."
"Thus, we think lifers will invest in foreign bonds even without currency hedging when USDJPY and cross yen dip. Their JPY selling during JPY's appreciation is likely to limit the downside on USDJPY and cross yens going forward."
Key Quotes
"As their liabilities are mostly JPY denominated, it is reasonable to expect them to prefer JPY-denominated assets, and regulations encourage them to invest mainly in risk-free JGBs."
"At the same time, the lower end of their assumed 10yr JGB range is 0.50-0.65% and the current level of JGB yields is at their lowest assumed ranges. Thus, they are likely to be reluctant to increase JGB exposure at current yield levels."
"In fact, some managers said that they need to be cautious about accumulating JGBs for now, as yields remain low. Thus, they may have to consider diversifying their assets from JGBs into other asset classes."
"Lifers’ only realistic alternative assets to JGBs currently are foreign bonds, in our view. Lifers' foreign bond investment activity was unusually low during the first half of FY2013, but we expect their activity to accelerate."
"Currency-hedged foreign bond investment will be the main alternative to JGBs, and current low hedge costs justify
hedged-based investment. Nonetheless, their assumed USDJPY level as of end-FY2013 is mostly 100 or above 100, and we believe they expect JPY to weaken against major currencies in the medium term."
"Thus, we think lifers will invest in foreign bonds even without currency hedging when USDJPY and cross yen dip. Their JPY selling during JPY's appreciation is likely to limit the downside on USDJPY and cross yens going forward."