Japanese life insurance companies plan to increase holdings of Japanese government bonds, and demand for super-long-term JGBs is expected to improve.

Japan’s major life insurance institutions have announced plans to maintain or expand their domestic bond purchases in the second half of this fiscal year, providing potential demand support for Japanese government bond auctions. Ultra-long government bond yields are near multi-decade highs, reshaping the asset allocation logic of Japanese institutional investors.

Japan Post Insurance stated that it plans to step up purchases of yen-denominated bonds, while Daido Life Insurance has raised its domestic bond holding target, focusing primarily on corporate bonds. Meiji Yasuda Life Insurance intends to keep its Japanese government bond holdings largely unchanged, while swapping out low-yield bonds for high-yield ones.

These statements indicate that bond buying appetite among one of Japan’s most important groups of bond investors is recovering.

Signs of revived demand are already evident in the market. Tuesday’s auction of 20-year Japanese government bonds recorded the highest bid-to-cover ratio on record, demonstrating that even amid rising Middle East tensions, higher oil prices, and inflation-driven global bond selloffs, elevated yields continue to attract buyers.

According to Japan Securities Dealers Association data, life insurance institutions have been net buyers of ultra-long Japanese government bonds for four consecutive months.

A Japan Post Insurance spokesperson stated that the company plans to continue purchasing government bonds to replace maturing positions, saying, "Given the recent rise in interest rates, we currently view all tenors across the yield curve as potential investment targets."

Daido Life Insurance has raised its domestic bond holding plan, mainly by increasing corporate bond holdings. Meiji Yasuda Life Insurance’s strategy focuses on maintaining a stable total government bond position, while replacing existing low-yield holdings with higher-yield bonds to enhance portfolio returns.

Life insurance institutions’ purchases of long-term government bonds are structurally significant—their asset-liability management needs inherently incline them toward ultra-long-dated allocations. As the Bank of Japan continues to scale back its bond purchases, the actions of life insurers are especially critical for absorbing government bond supply.

Ultra-long Japanese government bond yields are now near multi-decade highs, fundamentally altering the asset allocation considerations for Japanese institutional investors. Years of ultra-low interest rates had forced life insurers into overseas and higher-risk assets, but the sharp increases in yields are now driving a redeployment of funds back into domestic bonds.

Société Générale strategist Stephen Spratt commented, "Life insurance institutions are likely to further raise their allocation to Japanese government bonds in the second half of the year. Domestic demand is picking up, while the size of ultra-long bond auctions has also been reduced."

HSBC Asia Pacific rates strategist Justin Heng pointed out that the relative stability of the yen also helps investors increase their exposure to Japanese government bonds, stating, "Absolute yields are attractive, and the yield curve is steepening. In our view, the current calm in the Japanese government bond market may persist for some time."

According to the Life Insurance Association of Japan, as of the end of July, Japanese life insurance institutions collectively held about 386 trillion yen (approximately 2.4 trillion US dollars) in investment assets, meaning even small changes in their allocations can have a considerable impact on both domestic and overseas markets.

However, market risks remain. Homin Lee, senior macro strategist at Lombard Odier Asset Management, noted that the possibility of Prime Minister Sanae Takaichi introducing a second supplementary budget, the size of the initial FY2027 budget, and future Bank of Japan policy directions all represent potential uncertainties.

Nevertheless, he added that as the supply outlook for bonds becomes clearer and demand stabilizes, "The coming weeks’ government bond auctions are likely to enjoy somewhat firmer support."