Reuters: US Dollar Report: UPDATE 1-Japan's Dai-ichi Life to boost yen bond holdings

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UPDATE 1-Japan's Dai-ichi Life to boost yen bond holdings Apr 24th 2012, 08:22 Tue Apr 24, 2012 4:22am EDT * Dai-ichi expects dollar/yen to stay in Y75-85 in 2012/13 * Plans to keep foreign bond holdings steady * To increase yen bond holdings, extend duration * Sees only moderate recovery in Japanese economy By Hideyuki Sano and Naoyuki Katayama TOKYO, April 24 (Reuters) - Japan's second-largest life insurer, Dai-ichi Life, said on Tuesday it does not expect the yen to fall much beyond its low hit last month and plans to basically keep its foreign bond holdings flat in the 2012/13 financial year. A senior executive also said Dai-ichi, which has total assets of around 31 trillion yen ($382 billion), plans to p ut much of its new money into yen bonds and extend the duration of its portfolio, avoiding taking risk in stocks and currency volatilities. "Even though the yen weakened temporarily earlier this year, we think the yen will remain near historical highs," Takashi Iida, manager of Dai-ichi Life's investment planning department, told a group of reporters. Dai-ichi said it expected the dollar to stay in the 75-85 yen range in the year from April and to stand around 80 yen at the end of March 2013. The dollar rose to an 11-month high of 84.187 yen in March after the Bank of Japan eased policy in February, up nearly 12 percent from a record low of 75.311 yen hit in October. The U.S. currency stood at 81.20 yen on Tuesday. Despite expectations that the BOJ will keep an easy policy stance, the dollar will likely be capped because the market also expects the U.S. Federal Reserve to take additional easing steps, Iida said. "We think the U.S. housing and jobs markets will still continue adjustment and the Fed will keep an easy stance," Iida said. Iida said Dai-ichi plans to keep the amount of foreign bond holdings steady but added that it could consider buying more foreign bonds without currency hedging if economic conditions turn more favourable to allow it to take larger risks. In the last financial year, the company held foreign bond holdings without currency hedging steady while it cut holdings on currency-hedged foreign bonds as a fall in U.S. and German bond yields made them increasingly unattractive. The 10-year U.S. Treasury note yield stood at 1.94 percent , just about 100 basis points over the JGB yield, less than a half of the yield advantage of more than 200 basis points they enjoyed until last June. The 10-year German yield fell to a record low of 1.549 percent on Monday, as investors flocked to German bonds as they shunned debt of Spain, Italy and some other countries. Iida said the company expected U.S. bond yields to rise this financial year, up to 2.75 percent but not to levels seen in 2010. "Things will not return to the pre-quake levels, when risk assets were supported by expectations of the Fed's QE2. We only see them returning to the levels where people were talking about the risk of a euro zone debt crisis," Iida said, Dai-ichi said it planned to buy long-dated yen bonds in the current financial year, but declined to say by how much. Like many of its rivals, Dai-ichi has been increasing its bond holdings and paring back its equity portfolio in recent years to reduce its exposure to market volatility. Buying of long-term bonds is aimed largely at matching the insurer's assets more closely with its long-term yen liabilities. The insurer said it expected JGB yields to stay near current lows due to slow growth, low inflation and the BOJ's easy policy stance. The BOJ is widely expected to take new easing steps at its policy meeting on Friday, prompting the 10-year Japanese government bond yield to fall to a 1-1/2-year low of 0.910 percent this week. "The yen's rise came to a halt and we can expect monetary easing from the BOJ. Those are positive factors (on the economy). But on the other hand, reconstruction demand after the quake cannot last forever. At some point, it will fade," Iida said. It sees the 10-year JGB yield moving between 0.90 to 1.20 percent this financial year. Link this Share this Digg this Email Reprints

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