Japan’s mid-sized life insurers are staying cautious on super-long Japanese government bonds (JGBs) as policy uncertainty and heightened attention on paper losses keep duration risk in focus, according to a Bloomberg report.
The caution follows a sharp move in the long end of the curve this month, when yields on the longest-dated JGBs surged to record levels before easing back. Japan’s 30-year yield has fallen to around 3.6% after hitting 3.875% on 20 January, but remains above levels not seen before this year since super-long JGBs were introduced in 1999.
Insurers are weighing political risk ahead of a snap election called by Prime Minister Sanae Takaichi, with debate over a potential consumption tax cut adding to concerns about Japan’s already heavy public debt burden. Uncertainty around the Bank of Japan’s interest-rate path and the yen’s outlook, including speculation about possible intervention, has also contributed to a more defensive stance.
Fukoku Mutual Life Insurance has avoided 30-year and 40-year JGBs since the second half of its fiscal year began in October, shifting instead to bonds with 10- to 15-year remaining maturities.
“Bond yields rose too much and have now fallen, but the fundamentals haven’t changed,” said Hiroe Oizumi, general manager for fixed income at Fukoku’s securities investment department. While he noted that it is unlikely yields will return to their peaks in the short term, he said “there’s a possibility that they’ll break above that level” in the medium term.
Daido Life Insurance said it does not plan to buy more super-long bonds for now, even though yields have risen to levels it considers “appealing”, citing continued volatility.
“There are few signs of stability in the near term,” said Munehiro Ootani, head of its investment planning department, adding that Daido is watching how policymakers would finance any consumption tax cut after the election.
Taiyo Life Insurance said yields have climbed faster than it expected at the start of the fiscal year in April 2025 and plans to sell low-interest government bonds and other securities with unrealised losses, replacing them with higher-yielding debt. However, “if volatility is too high, it will be difficult to buy,” according to Yoshitaka Kiyotomo, a managing executive officer, noting that transactions will likely await calmer markets.
An earlier Bloomberg report noted that Japan’s Financial Services Agency brought forward a regular check on major life insurers’ financial health and sent questions to firms, including Nippon Life, on unrealised securities losses, responses taken, and future investment plans, with unrealised losses on domestic bonds at four firms totalling nearly JPY11.3trn (approx. US$73.9bn) at end-September.
Some investors have taken a more constructive view of the long end. Tomoya Masanao, Pacific Investment Management’s head of Asia-Pacific portfolio management, wrote that the steepness of the yield curve and the government’s incentives to limit long-end issuance “support this positioning.”
