Dai-ichi Life Insurance Co. has reported a significant loss of approximately ¥140 billion (around $890 million) following the sale of long-term bonds. This decision was made in anticipation of higher interest rates, as the company sold about ¥500 billion in Japanese government notes, primarily focusing on 20- to 40-year bonds during the fiscal first half ending September 2024 [ce53b508].
President Toshiaki Sumino indicated that future bond sales would be more restrained as the company navigates the shifting financial landscape. Currently, Dai-ichi holds ¥18.9 trillion in yen-denominated bonds, and Sumino expects the Bank of Japan (BoJ) to raise interest rates in January 2025. He expressed concerns about maintaining a 2% inflation rate, projecting upper limits of 2.5% for 30-year bonds and 1.5% for 10-year bonds [ce53b508].
This financial maneuver comes at a time when Japan is grappling with significant economic challenges, including a record national budget and rising personal debt. The Japanese government recently approved a budget of 115.5 trillion yen for the fiscal year starting April 2025, reflecting a 2.6% increase from the previous year. This budget is largely driven by increased social security and debt-servicing costs, as the nation continues to manage the world's heaviest public debt burden, exceeding double its annual economic output [b3b5217f].
As consumer loans in Japan surged at the highest rate in 16 years, household borrowing has exceeded incomes for the first time, leading to a projected rise in personal bankruptcies to over 70,000 this year. The average household debt has reached ¥6.55 million, while average wages remain significantly lower than those in the U.S. [59b2da22].
The financial strain on households has also been linked to a troubling increase in suicides related to debt, with 792 cases reported in 2023, the highest since 2012. Mental health resources are being made available for those affected, as the social implications of this financial crisis become increasingly evident [59b2da22].
In light of these developments, Dai-ichi Life's strategy to divest from long-term bonds reflects a broader trend among financial institutions in Japan as they prepare for anticipated changes in the interest rate environment. The company's annualized premiums from new contracts reached ¥55.9 billion, 2.5 times higher than the previous year, marking the highest level since the first half of 2016 [ce53b508].