Meiji Yasuda Expects Forex Hedging Costs to Triple in the Coming Year – MarketWatch

By Megumi Fujikawa
TOKYO–Meiji Yasuda Life Insurance Co., one of Japan’s biggest life insurers, said Wednesday that it expects the cost of hedging against currency fluctuations to triple in the coming year, which could make Japanese investors hesitant to purchase foreign bonds.
Meiji Yasuda expects the three-month dollar-yen hedging cost to be 3% by March 2023, compared with 1.04% at the end of the last fiscal year, which ended March 31.
Hedging costs, which are usually measured by short-term interest rate differentials, are rising for Japanese investors investing in dollar assets because the Bank of Japan is likely to keep ultra-easy interest rates, while the U.S. Federal Reserve is set for more rate increases this year to fight inflation.
The rise in the hedging costs sharpens a dilemma for Japanese institutional investors, such as life insurers. Yields on U.S. Treasurys are more attractive than Japanese government bonds, but the rise in hedging costs eats away at the advantage. Meanwhile, investing without hedging is risky because the yen-dollar exchange rate is volatile. Ultimately, Japanese life insurers have to pay their policyholders in yen.
“Given that the hedging cost is trending higher due to monetary tightening by global central banks, we are aiming for maximum yields after the cost,” Yoshimasa Osaki, operating officer and general manager of Meiji Yasuda’s investment planning department, said at a news conference Wednesday.
The yield on 10-year U.S. Treasury bonds stands around 2.7%, compared with 0.24% on 10-year Japanese government bonds.
Last week, a dollar bought as much as 129.40 yen–the weakest level for the Japanese currency since April 2002. The yen currently trades around 127.70 to the dollar.
Of about 3 trillion yen ($23.58 billion) in new money at Meiji Yasuda’s disposal this fiscal year, the life insurer plans to invest about 20% in foreign bonds, while making decisions to invest with or without currency hedging depending on market conditions, Mr. Osaki said.
Meiji Yasuda had Y43.4 trillion in total assets as of the end of March, of which foreign bonds accounted for 21%.
Write to Megumi Fujikawa at
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