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By Bloomberg

The turmoil gripping global markets is handing Japan’s life insurers an opportunity, as they shift money overseas at the fastest pace since 2012.

The yen has strengthened more than 3 percent from a 13-year low reached in early June, as China’s stocks began their plunge into a bear market and Greece teetered toward default. The stronger currency is giving insurers added firepower as they snapped up a net 1.54 trillion yen ($12.7 billion) of foreign mid-to-long bonds in the three months ended June 30, an 18 percent increase from the same period a year earlier, according to Ministry of Finance data.

Insurance companies, which held about 43 percent of their assets in Japanese government bonds at the end of April, announced that month plans to buy more overseas debt, as the Bank of Japan’s record asset-purchase program depressed local yields. JGBs maturing in 10 years or more lost 1.6 percent in the six months to June, heading for their first annual decline since 2009, according to Bank of America Merrill Lynch data.

“The yen’s strength amid concerns over the Greek crisis and China’s financial problems will provide Japanese insurers buy-on-dip opportunities overseas,” said Hidenori Suezawa, the chief strategist at SMBC Nikko Securities Inc. in Tokyo. “Insurers invest for the long-term, unlike banks and hedge funds. We will see them increasing foreign holdings from here.”

Shifting Abroad

Japan’s 10-year notes yielded 0.45 percent on Friday in Tokyo, compared with 2.34 percent for equivalent U.S. Treasuries and 0.72 percent for German bunds. Japan’s benchmark yield plunged to a record 0.195 percent in January, pressured by an expansion in the BOJ’s bond-buying stimulus in October.

Governor Haruhiko Kuroda has said he wants domestic funds to shift money out of bonds and into stocks and overseas assets as the central bank snaps up as much as 12 trillion yen of debt per month to stoke inflation.

That stimulus, along with the Federal Reserve’s intention to raise interest rates this year for the first time since 2006, helped fuel a 16 percent decline in the yen versus the dollar over the past 12 months.

Analysts predict Japan’s 10-year yields will be largely unchanged from current levels by the end of March, at 0.48 percent. Ten-year U.S. yields are forecast to climb to 2.73 percent.

Behind Schedule?

“Insurers might be behind on their plans for increasing their overseas bond holdings now,” said Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co. “With the Fed’s interest-rate hike approaching, funding costs to buy foreign bonds are rising.”

Nippon Life Insurance Co., Dai-ichi Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co. all said in April they will cap JGB purchases and boost foreign holdings as they outlined their investment plans for the current fiscal year.

Forty-two life insurers held 347.7 trillion yen of the sovereign notes as of the end of April, according to data compiled by the Life Insurance Association of Japan. Holdings of overseas securities gained 15.3 percent to 66.7 trillion yen from a year ago, making up 19.2 percent of their assets, while investments in domestic bonds declined 1 percent to 147.7 trillion yen.

Credit Agricole SA says insurers needn’t worry that the turmoil in Chinese and European markets has clouded the outlook for U.S. monetary policy.

“Even if the Fed delays the start of its rate increases, so long as the prospect of policy divergence between Japan and the U.S. remains, we will see the trend for yen weakness and dollar strength continue,” said Kazuhiko Ogata, a Tokyo-based economist at the French lender. “It’s unlikely that life insurers will overhaul their investment plans and reduce their overseas bond investments.”