(Bloomberg) — Japan’s life insurers are likely to buy more domestic sovereign bonds this year after the end of negative interest rates in the country.
The companies will lay out their investment plans for the new fiscal year starting this month. Global investors pay close attention to the plans of life insurers, which have combined assets of $2.6 trillion, as they often move markets. There is a particular focus on whether they will repatriate funds. The insurers are also expected to flag the continued sale of foreign debt that is hedged against the yen’s appreciation because of the associated costs for protection.
In January, many of the insurers said they were holding off on purchasing JGBs due to low yields. The Bank of Japan removed the sub-zero interest rate and yield-curve control program in March and is predicted to further raise rates later this year. The yield on the 30-year sovereign securities, favored by life insurance companies to meet their long-term obligations, has risen almost 30 basis points this year to 1.92%, according to Bloomberg data.
“Yields on super-long securities are approaching 2%, which is a good level for life insurers to buy,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank Ltd. “As yen-denominated securities offer a certain level of returns, they will probably continue to cut foreign bonds with currency hedges. However, since it’s hard to see more than 2% return from the Japanese bonds, they will also add some overseas debt without hedges.
Fukoku Mutual Life Insurance Co., Meiji Yasuda Life Insurance Co. and Japan Post Insurance Co. all said in January that they would hold off from buying domestic sovereign bonds until yields rose and amid uncertainty surrounding the BOJ’s monetary policy.
Life and non-life insurers purchased a net ¥4.4 trillion ($29 billion) of Japanese bonds in the fiscal year ended March 31, according to Bloomberg estimates using data from the Japan Securities Dealers Association, adding to a net buying of ¥5.8 trillion the previous year. Life insurers offloaded a net ¥2.4 trillion of foreign bonds in fiscal 2023 after a record sale of ¥14 trillion a year earlier, according to the latest data from the Ministry of Finance.
Expensive hedging costs have made life insurers avoid foreign debt with hedges in the past few years. While the gap between US and Japanese 10-year yields is still at about 3.5 percentage points, the return from the US notes becomes negative after taking into account the cost of hedging against currency fluctuations, at around 5.4%.
“Life insurers may also indicate purchases of foreign sovereign and corporate debt without currency hedges,” said Eiichiro Miura, general manager of fixed-income investment at Nissay Asset Management Corp. “While the yield gap remains wide and the Federal Reserve is expected to deliver interest-rate cuts only at a gradual pace, the dollar-yen is unlikely to fall that much. The BOJ’s rate hike failed to boost the yen, which is also a reason for not having currency hedges.”
The yen has weakened more than 7.9% against the dollar this year, making it among the worst performing major currencies. Still, the yen is expected to strengthen to 142 per dollar by year-end, compared with a forecast of 135 made at end of last year, according to median estimates in Bloomberg surveys. Swap markets are forecasting two Fed interest-rate cuts this year, compared with more than six cuts predicted at the end of 2023.
As the yen reached its lowest level since 1990 as of Thursday at 153.32 per dollar and is expected to rebound toward the end of this year, the currency is a challenging part for investment abroad.
“Even though concerns about the pace of yen’s appreciation have eased, investors still see the yen strengthening,” said Hideo Shimomura, senior portfolio manager at Fivestar Asset Management Co. “They have to buy overseas debt on dips in the dollar-yen exchange rate. It isn’t easy.”
The nation’s life insurers including Nippon Life Insurance Co., Sumitomo Life Insurance Co., Dai-ichi Life Insurance Co., Japan Post Insurance Co. and Meiji Yasuda Life Insurance Co., will release their investment plans this week and next.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
