Nippon Life snapped up long-dated JGBs during sell-off, says yields may retest highs

By Tomo Uetake

TOKYO, March 3 (Reuters) - Nippon Life Insurance accelerated purchases of longer-dated Japanese government bonds (JGBs) when yields shot to all-time highs in January, and sees a risk that yields could soon retest those levels, a senior executive said.

Nippon Life, with some 83 trillion yen ($528 billion) of assets under management, is the largest among Japanese life insurers that have traditionally been a pillar of support for the JGB market, making their investment plans closely watched in markets.

JGB yields vaulted to record peaks as prices of the debt plunged in mid-January, after Japanese Prime Minister Sanae Takaichi's call for a snap election and pledge to suspend the sales tax on food stoked concerns about the nation's finances.

Nippon Life bought aggressively when the 30-year JGB yield peaked at an all-time high of 3.88%, said Akira Tsuzuki, an executive officer and general manager of finance and investment planning.

Yields have fallen to as low as 3.275% since then, but they could shoot up again if Takaichi begins debates on tax cuts, increased defence spending or more investment in the U.S. when she meets President Donald Trump this month, he added.

"If various policies emerge without careful explanation of their funding sources, market anxiety could resurface," Tsuzuki said in an interview on Monday. "At that point, we naturally think there's a possibility of temporarily testing new highs in the upper 3% range."

Life insurers previously were heavy buyers of so-called super-long JGBs in order to meet regulatory asset requirements related to the policies they sold. But the insurers have largely met those asset thresholds, diminishing their appetite to further add to holdings.

Investment flows data show that foreign investors have taken up a lot of that slack in the super-long JGB market.

Nippon Life expects the Bank of Japan to raise its policy rate by a quarter point to 1% in April, followed by another hike within the fiscal year ending in March 2027, depending on economic and price conditions.

The insurer will continue replacing low-coupon bonds with higher-yielding 30-year debt, offsetting realised bond losses with gains on equities where possible, Tsuzuki said, while adding that the investment plan for the upcoming fiscal year will not change significantly.

"We will continue to actively manage bond replacements while also adding to investments in alternative assets, including private credit," he said.

($1 = 157.2700 yen)