Meiji Yasuda Life to Boost Bond Holdings, Cut Stocks

Meiji Yasuda Life Insurance Co. said it plans to hold more Japanese bonds and fewer domestic stocks during the second half of this fiscal year.

Japan’s third-biggest life insurer will increase holdings of the nation’s debt by 400 billion yen ($4.9 billion) in the six months ending in March, the Tokyo-based company said in a statement today outlining its asset allocation. Meiji Yasuda, which didn’t specify the cut in shares, also said it may raise investment in foreign bonds by 200 billion yen mostly through purchases of securities without currency hedges.

“We will reduce such assets as stocks which are hostage to price fluctuations, while focusing on prolonging the duration of our bond portfolios,” Yasuharu Takamatsu, deputy president and head of investments, said at a press briefing in Tokyo today.

Meiji Yasuda’s plan follows larger rival Dai-ichi Life Insurance Co.’s announcement last week that it would boost holdings of Japanese bonds. Meiji Yasuda will raise outstanding debt assets by 1.5 trillion yen in the 12 months to March.

The insurer forecasted yields on Japan’s 10-year government bonds will end March at 1 percent, while yields on similar-dated U.S. Treasuries will be at 2.6 percent. The Nikkei 225 Stock Average will finish the fiscal year at 10,000, Meiji Yasuda said.

Japan’s currency will trade in a range of 78 yen to 90 yen against the dollar and 105 yen to 125 yen versus the euro in the second half, the insurer projected. Japan’s currency traded at 81.49 yen per dollar and 113.25 yen per euro today.

No Hedges

“Given the recent rise in dollar-denominated hedging costs, we will refrain from increasing bond purchases with currency hedges,” Takamatsu said.

The difference between Japanese and U.S. short-term borrowing costs determines the fee to hedge securities from currency moves. The spread between the three-month London interbank offered rate, or Libor, for dollars and yen widened to nine basis points yesterday from as narrow as minus seven basis points in September 2009. A basis point is 0.01 percentage point.

Meiji Yasuda plans to increase foreign stock holdings by 50 billion yen in the second half by focusing on Asian assets, while keeping unchanged its outstanding loans in Japan and investments in real estate.

Meiji Yasuda had 25 trillion yen worth of assets in its general account as of the end of September, according to the company’s investment plan. So-called stable-return assets, including domestic bonds and loans, accounted for 70 percent of its portfolio, the plan showed.

Meiji Yasuda’s Market forecasts:

                                   Range            March-End
Japan 10-year bond yields:     0.70% - 1.20%            1.0%
Japan short-term rates:            0% - 0.1%       0% - 0.1%
U.S. 10-year note yields:        1.8% - 3.0%            2.6%
U.S. Fed Fund Rate:               0% - 0.25%      0% - 0.25%
Yen against the dollar:              78 - 90              87
Yen against the euro:              105 - 125             111
Nikkei 225 Stock Average:     8,500 - 10,500          10,000
Dow Jones Industrial Average: 9,500 - 12,000          10,500
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