Japan Lifers' Love of Foreign Assets Counters Yen's Haven Allure

(Bloomberg) -- Japanese life insurers’ voracious appetite for assets overseas is proving to be a formidable obstacle for yen bulls.

The ratio of foreign securities to total assets for the nation’s life-insurance companies rose to 22 percent at the end of the last quarter, data from the Bank of Japan showed on Thursday. The yen slipped 4 percent against the dollar in the period, the most since 2016, even as global trade tensions and emerging-market turmoil were expected to have bolstered demand given the currency’s traditional safe-haven status.

“The rising outward investment from Japan is a reason why the yen hasn’t strengthened even when there was bad news for the markets,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Japanese investors have no choice but to go abroad to benefit from faster growth rates.”

Japan’s life insurers held 377.8 trillion yen ($3.4 trillion) of assets at the end of June. The ratio of foreign assets was 18 percent as of June 2016. A separate balance-of-payments report earlier this month showed the firms bought twice as many bonds as equities overseas during the second quarter.

The purchases are steadily sapping the yen’s haven status. The correlation between the dollar-yen exchange rate and implied volatility on the S&P 500 Index has fallen to minus 0.22 from minus 0.60 in mid-2016, according to data compiled by Bloomberg.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani, Nicholas Reynolds

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