Japan's Sumitomo Life Insurance said it plans to keep its exposure to foreign bonds fully hedged in the financial year to March 2012 as the US economy is not strong enough to keep the dollar in an constant uptrend.
Sumitomo Life, Japan's fourth-largest insurer, also said it plans to increase allocations in yen bonds by "several hundred billion yen," focusing on superlong Japanese government bonds and other yen bonds as the company seeks to lower its exposure to risk assets including equities.
The life insurer, which held about 24 trillion yen ($290 billion) in assets as of December, will seek the appropriate timing to increase its exposure to foreign bonds during the current 2011/12 financial year, after buying a net 300 billion yen the previous year, Haruhisa Hirata, deputy general manager of investment strategy at Sumitomo Life, told Reuters in an interview.
Sumitomo thinks the US Federal Reserve will not tighten its monetary policy during the current business year, making it difficult to keep the dollar in an upward trend, Hirata said.
"We plan to keep our foreign bond positions hedged. We'll keep that stance until we are sure that the dollar is in a constant uptrend," Hirata said.
"We forecast the dollar to be slightly firmer ... but there is still a chance for the dollar to test around 80 yen."
Hirata said to see the dollar advance at a constant pace, the market needs to confirm bigger global fund inflows into the US currency. Sumitomo life expects the dollar to move in a range of 78 to 95 yen in the current year and the US currency to be at 86 at the end of March in 2012. Japan's top nine insurers hold total assets of about $1.9 trillion - larger than the size of the world's eighth-largest economy, Brazil - and their investment decisions are closely watched by financial markets.
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