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Japan insurers' Canadian

investment seen stable

TOKYO: Japanese life insurers' investment in Canadian bonds, which has been declining steadily over the past few years, has most likely bottomed out, life insurance sources said.

"Until last year, we were reducing the weight of Canadian assets, and other foreign assets, in our portfolio. But now the picture's getting a bit more favourable," a manager at one of Japan's major life insurers said.

He attributed the change to a more stable currency market and the Japanese Ministry of Finance's August 2 announcement of deregulatory steps to promote foreign investment.

The manager also warned that investment was unlikely to rise suddenly. "The decreasing trend has ended but probably it won't increase that much either - it's still a bit early to say plans have changed that much."

As of March 31, total Canadian dollar-denominated assets held by the eight major Japanese life insurers had plunged to less than half that of the previous year, to 455.76 billion yen from 947.18 billion yen.

Total foreign currency denominated assets stood at 7.64 trillion yen, a drop of 20.6 percent from the previous year.

Although there has been talk in the market that Japanese investor interest may be shifting to yen-denominated provincial bonds from Canadian government bonds, life insurance sources said this did not appear to be a pronounced trend.

"There was more interest in the past, when the currency market was much more unstable, and we did hold some Canadian yen-denominated bonds," said one manager of an insurance firm.

But he noted that as the dollar's increased stability reduced the risk of losses due to currency fluctuation, investment policy is being based more on other issues, such as interest rate differentials.

Other managers said interest in provincial bonds was waning with the emergence of potentially destabilising factors such as Quebec's drive for independence, as well as long-term financial difficulties.

"We do hold some Canadian government bonds, but currently have no plans to shift these assets to provincial bonds," one manager said.

Although he added that his company has no plans to decrease Canadian investment over the next year, it is difficult to predict what will happen after that. "We will watch currency rates and move cautiously," he said.-Reuter