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Dai-ichi Life Incurs $890 Million Loss on Long Bond Sales

by Celia

Dai-ichi Life Insurance Co., one of Japan’s leading insurance providers, has incurred an estimated loss of $890 million due to the sale of long-maturity bonds as part of its strategy to prepare for anticipated interest rate hikes.

The insurer, which sold ¥500 billion (approximately $3 billion) in bonds during the first half of the fiscal year, primarily concentrated on bonds with maturities ranging from 20 to 40 years. President Toshiaki Sumino reassured Bloomberg that while the sales were significant, the company planned to scale back in the latter half of the fiscal year.

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“We will continue to carry out replacement operations while carefully monitoring the impact on profits and losses. I don’t believe this loss will affect our financial stability,” Sumino stated.

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Sumino also expressed expectations that the Bank of Japan (BOJ) would raise interest rates in the near future, in line with Japan’s economic recovery. However, he noted that the BOJ’s policy board had decided to keep rates unchanged in December as Governor Kazuo Ueda waited for further clarity on economic developments, including the potential policies of U.S. President-elect Donald Trump.

“I have some concerns about whether we can sustain a 2% inflation rate,” Sumino added, suggesting that the upper limit for 30-year bonds could be around 2.5%, while 10-year bonds may top out at 1.5%.

Global bond yields have been on the rise as the U.S. economy shows signs of resilience. Factors such as a low unemployment rate, robust corporate bond sales, and rising oil prices have fueled expectations that the U.S. Federal Reserve may hold off on further rate hikes. In December, the yield on the benchmark U.S. 10-year Treasury bond rose by 40 basis points to 4.569%, later climbing to 4.626%.

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Tomoichiro Kubota, a senior market analyst at Matsui Securities Co., warned that rising interest rates could continue to cause losses on long-term bonds.

“It’s difficult to say that interest rates have peaked at their current levels. Therefore, we can expect further realized losses on bonds as interest rates continue to climb,” Kubota said.

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