Japan's Fukoku Life turns wary of dollar weakness, increases FX hedge

Credit: REUTERS/YURIKO K NAKAO

Japan's Fukoku Mutual Life Insurance [FKMLI.UL] increased currency-hedged foreign bond investments in the six months to September on concerns about a decline in the dollar, an investment planning official said on Monday.

By Daiki Iga

TOKYO, Oct 19 (Reuters) - Japan's Fukoku Mutual Life Insurance FKMLI.UL increased currency-hedged foreign bond investments in the six months to September on concerns about a decline in the dollar, an investment planning official said on Monday.

The insurer plans to continue raising such holdings slightly in the current half year too, as it expects the dollar to weaken against the yen after the U.S. elections next month no matter who wins, the official said.

The stance marked a clear turnaround for the firm, which was planning to increase foreign bond investment without currency hedging on a bullish view on the dollar six months ago.

"Whoever wins the White House, the U.S. budget deficit is likely to soar and the U.S. administration will likely desire a weaker dollar," Yusuke Onodera, general manager of investment planning at Fukoku told Reuters.

The dollar has been weakening broadly since June, partly due to unwinding of safe-haven dollar buying during the market's rout in March on panic over the coronavirus pandemic.

But traders say its fall also reflects investors' uneasiness about the U.S. struggle to tame the epidemic as its snowballing public debt to finance stimulus is largely financed by the Federal Reserve's money-printing.

Including FX-hedged and unhedged investment, Fukoku Life increased foreign bonds by 50 billion yen in the first financial half year and plans to raise their holdings by another 10 billion yen in the second half, which will end on March 31, Onodera said.

Fukoku Life also said it increased holdings of long-dated Japanese government bonds by 50 billion yen in the last half year despite a plan to cut them by 30 billion yen, reflecting a lack of attractive investment opportunities.

"We parked our funds in JGBs as their yields were stable. But we don't find the current yields attractive. If there are opportunities elsewhere, we could sell some of the JGB holdings," Onodera said.

Separately, rival Taiju Life Insurance also said it has increased holdings of domestic bonds by 33 billion yen, similarly diverting from its original plan to reduce low-yielding domestic bonds.

(Reporting by Daiki Iga, additional reporting by Hiroko Hamada, writing by Hideyuki Sano Editing by Chang-Ran Kim; Editing by Sam Holmes)

((hideyuki.sano@thomsonreuters.com; +81 3 4563 2768))

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