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Debt Prices Collapse, Life Insurance Assets Under Pressure
The primary reason for this massive loss is the significant rise in the yield of Japanese long-term government bonds this week, leading to a sharp decline in bond prices. Japanese life insurance companies hold a large amount of 30-year Japanese government bonds, which happened to be one of the hardest-hit targets in this week’s severe sell-off.
In response to the changing market environment, Japanese life insurance has also revealed that the company has realized bond sale losses of approximately 500 billion yen in the past fiscal year and plans to further reduce its overall government bond holdings, thereby further lowering exposure based on book value.
Life Insurance Industry Faces Asset Revaluation Pressure
Meanwhile, other major financial institutions, such as Norinchukin Bank and Sony Life, have also expressed their intention to adopt a more cautious approach towards investments in Japanese government bonds. With rising inflation and climbing interest rates, these institutions, which have long regarded Japanese Government Bonds (JGB) as a ballast asset, are reassessing their roles.
Analysts warn that if yields continue to rise, the demand for long-term bonds from the life insurance industry may further shrink, posing challenges to the Japanese government’s fundraising capabilities. Mizuho Securities has even described some ultra-long-term bonds as “potentially difficult to swallow.”
Arthur Hayes: Even the Life Insurance Industry Can’t Hold On, the Bond Market Has ‘Exploded’
In light of this situation, well-known cryptocurrency trader Arthur Hayes commented:
“When life insurance companies, which are legally bound to almost only buy government bonds, get hit hard and have to start retreating, the bond market is truly finished. The Bank of Japan is now under scrutiny—it’s only a matter of time before they hit the printing button more aggressively.”
