USD/JPY will likely go higher. Japan insurers may cut hedging

Japanese life insurers may start running more currency risks as hedging costs hit an 8-year high and the case for protection against a stronger yen looks increasing weak as BOJ and Fed policies diverge, Bloomberg strategist Masaki Kondo writes.

Three-month hedging cost, derived from USD/JPY forwards, rose to 1.91% on Tuesday, highest since October 2008, from 1.72% at end of fiscal first half on Sept. 30.

Yen tumbled 10% against dollar in the past 2 months and analysts are calling for even further declines in the Japanese currency due to widening policy differentials between BOJ and the Fed.

Pricier protection against a stronger yen and an increasingly weaker Japanese currency may prompt life insurers to reduce their hedging levels from a 5-year high .

Japan’s nine biggest life insurers together boosted hedging ratio to 63.5% in 1H, highest since March 2011, from 55.1% on March 31.


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