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Nippon Life Plans to Invest $12 Billion, Mainly in Japan Bonds

Nippon Life Insurance Co., Japan’s biggest life insurer, plans to invest about 1 trillion yen ($12 billion) this financial year, with as much as 80 percent of the money to buy yen-denominated bonds for stable returns.

Nippon Life, with 47 trillion yen in assets, will focus on Japanese government bonds with longer maturities and corporate debt in the year ending March 31, said Yosuke Matsunaga, general manager of the finance and investment planning department.

Nippon Life joins rivals Dai-ichi Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co. in betting on the relative safety of fixed-income investments as Japan struggles with the aftermath of a record earthquake. Nippon Life’s unrealized gains on investments last fiscal year slid to 1.91 trillion yen from 2.4 trillion yen in the previous 12 months amid falling stocks and a stronger yen, Matsunaga said.

“The bulk of our planned new investments this financial year will continue to be in fixed-income securities, mostly in yen-denominated bonds that provide stable income,” Matsunaga said at a press briefing in Tokyo yesterday. “We will actively adjust our portfolio by looking at the relative attractiveness among the yen-denominated bonds.”

Prime Minister Naoto Kan today proposed a 4 trillion yen extra budget that is likely to be the first of several packages to rebuild areas devastated by the March 11 quake and tsunami. The government plans to fund the budget without increasing the 44.3 trillion yen in new bond issuances set for the year ending March, according to a statement. Japan’s public debt is about twice the size of the economy.

Increase Loans

Nippon Life may increase loans to companies by several tens of billions of yen to about 50 billion yen this fiscal year, while overseas bonds with currency hedges will probably be unchanged or decrease, Matsunaga said.

Domestic stock holdings will probably be unchanged, while Nippon Life may increase investments in foreign equities with a focus on emerging markets that have higher growth prospects, Matsunaga said. The insurer also plans to increase holdings of overseas bonds without currency hedges when the yen strengthens, reducing the cost, he said. Real estate investments may rise slightly.

Japan’s Nikkei 225 Stock Average tumbled 12 percent in the year ended March 31. In contrast, holders of Japan’s bonds earned 1.9 percent on their investments, as measured by indexes compiled by Bank of America Corp.’s Merrill Lynch & Co. unit.

In the fiscal year ended March 31, Nippon Life boosted investments in Japanese bonds by 1.16 trillion yen and overseas bonds with currency hedges by 900 billion yen, Matsunaga said. It also increased loans by 30 billion yen, he said.

Foreign bonds without currency hedges increased 390 billion yen last fiscal year, domestic equities rose 10 billion yen and real estate investments climbed 40 billion yen, he said. Holdings of overseas equities declined 10 billion yen.

Following are Nippon Life’s market forecasts for the current fiscal year through March 2012. The ranges refer to where the insurer expects securities to trade during the period.

                                  Range             Median
Japan’s 10-year bond yields:    1.0% - 1.5%           1.3%
U.S. 10-year note yields:       3.0% - 4.0%           3.5%
Yen against the dollar:           75 - 95              85
Yen against the euro:            105 - 125            115
Nikkei 225 Stock Average:      9,500 - 12,000      11,000
Dow Jones Industrial Average: 10,000 - 13,000      12,000

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