Betting on interest rate hikes! Japan Post Insurance plans to abandon low-yield Japanese bonds and shift to high-yield bonds to cope with rising interest rates.

The CEO of Japan Post Insurance Co. stated that the company plans to sell its low-yield government bonds and replace them with higher-yield bonds, based on expectations of further interest rate hikes by the Bank of Japan. As one of Japan's largest insurance companies, Japan Post Insurance held securities assets worth 50.35 trillion yen (approximately $320 billion) as of the end of last year. With a surge in Japanese bond yields in the fourth quarter of last year, the estimated losses on its Japanese bonds increased by about 30% to 4.39 trillion yen in the three months ending last year. CEO and President Kunio Tanigaki stated in an interview on February 27, "Adjustments are crucial in the background of rising interest rates so that we can benefit reasonably from the rate hikes." He added that market rates "are expected to continue to rise in the near future." The life insurance company predicts that the Bank of Japan could raise rates again as early as April. A company spokesperson said on Tuesday that their rate expectations have remained unchanged since the outbreak of the Middle East conflict over the weekend. After the Bank of Japan ends its ultra-loose monetary policy in March 2024, life insurance companies like Japan Post Insurance must consider how to handle the bonds purchased before. Some companies are selling these bonds and replacing them with higher-yielding debt instruments. While the situation in the Middle East has strengthened expectations that the Bank of Japan will not raise rates this month, interest rate swap markets show a 65% probability of a rate hike at the April meeting, with a rate hike likely before July. As important assets investment by insurance companies to match long-term liabilities, the 30-year Japanese government bond yield has risen by about 1.5 percentage points since the Bank of Japan began its current rate hike cycle. Senior General Manager of Investment Planning Hiroyuki Nomura stated in the same interview that the company anticipates the yield on benchmark 10-year Japanese government bonds to rise to 2.5% in the fiscal year starting from April 1, under the backdrop of the Bank of Japan responding to inflation pressures and a weakened yen the yield was around 2.1% on Tuesday.