Japan’s midsize life insurers are reducing their exposure to 30- and 40-year Japanese government bonds (JGBs), following a similar move by larger carriers in response to higher yields and policy uncertainty. Fukoku Mutual Life Insurance is among the companies that have stepped back from the longest-dated JGBs, even after yields retreated from recent records. Superlong JGBs have typically been used by life insurers to match long-dated liabilities, but expectations of further rate increases are prompting a shift toward shorter maturities.
“Bond yields rose too much and have now fallen, but the fundamentals haven’t changed,” said Hiroe Oizumi, general manager for fixed income at Fukoku’s securities investment department, as reported by The Japan Times. While she said it is unlikely that yields will revisit their recent peaks in the near term, in the medium term, “there’s a possibility that they’ll break above that level.” Oizumi said Fukoku has largely stopped buying 30- and 40-year JGBs since the second half of the fiscal year that began in October, citing the risks of holding very long-dated bonds over extended periods. The insurer has instead focused on JGBs with remaining maturities of 10 to 15 years and, when superlong yields jumped on Jan. 20, limited new activity to small purchases of shorter-dated paper.
The 30-year JGB yield has since eased to around 3.6% after reaching a record 3.875% on Jan. 20, a level not seen since the tenor was introduced in 1999. The speed and scale of the move prompted Japan’s Financial Services Agency (FSA) to accelerate a scheduled review of major life insurers’ balance sheets to assess unrealized losses on bond holdings. For insurance investors in Asia, the episode underlines how quickly duration risk can surface when yields rise, particularly for institutions with long-term guarantees and close regulatory oversight.
Insurers’ caution toward the superlong sector is being reinforced by political and macroeconomic developments. Prime Minister Sanae Takaichi’s decision to call a snap election to solidify her mandate has focused market attention on fiscal choices and their implications for government borrowing. Both the ruling and opposition parties have discussed possible consumption tax cuts, contributing to weakness in longer-dated JGBs on concerns about public debt dynamics. At the same time, uncertainty about the Bank of Japan’s policy trajectory and the yen’s direction, including the possibility of currency intervention, is weighing on willingness to extend duration.
Daido Life Insurance, another midsize life insurer, is also holding off from increasing superlong JGB positions despite higher yields. The company is refraining from additional purchases for now because of market volatility, said Munehiro Ootani, head of the investment planning department. “There are few signs of stability in the near term,” Ootani said, adding that Daido is watching how policymakers intend to finance any consumption tax cut after the election. Taiyo Life Insurance has been adjusting its portfolio after yields rose faster than it anticipated following the start of the fiscal year in April 2025. Managing executive officer Yoshitaka Kiyotomo said the company plans to sell low-coupon JGBs and other securities with unrealized losses and reinvest into higher-yielding bonds. However, “if volatility is too high, it will be difficult to buy,” and actual trades will depend on markets settling, Kiyotomo said.
The shift away from superlong bonds is occurring alongside an expected expansion in Japan’s life insurance market, shaping how insurers manage asset-liability matching and capital over the rest of the decade. According to GlobalData, Japan’s life insurance market is forecast to grow from JPY38.7 trillion (US$266.2 billion) in 2026 to JPY47.8 trillion (US$337.7 billion) in 2030, a compound annual growth rate of 5.4% in gross written premiums. GlobalData’s Global Insurance Database indicates that the market is expected to grow by 1.7% in 2025 and 3.4% in 2026, supported by higher credited yields on new life policies, capital management measures, including reinsurance, and ongoing development of digital distribution channels. “The 2026 inflection follows a 2024 contraction, signalling a stabilising operating environment. Stronger sales of yen-denominated life policies have offset weakness in foreign-currency products, supporting topline stability into 2025 and establishing a stronger base for 2026,” said Katam Prasanth, insurance analyst at GlobalData.
Japan’s Ministry of Finance has previously raised JGB yields as part of efforts to fund a JPY21.3 trillion (US$135 billion) economic package, with the maximum 40-year JGB rate moving from 3.34% in January 2025 to 3.56% as of Nov. 25, 2025. In response, life insurers have reduced domestic equity exposure and increased allocations to higher-yielding fixed-income assets, while managing solvency, liquidity, and accounting impacts. Prasanth noted that “in an effort to avoid mark-to-market losses on JGBs, some carriers have turned to hold-to-maturity accounting for portions of their JGB holdings – sacrificing near-term flexibility in favour of portfolio stability. These factors supported insurers in offering policies with more attractive interest rates, boosting demand.”
Capital management and reinsurance remain central to Japanese life insurers’ planning, with implications for other Asian markets considering similar structures. In March 2025, the FSA increased its scrutiny of offshore life reinsurance arrangements, particularly those involving Bermuda-based entities, as carriers expanded the use of reinsurance to improve capital efficiency under evolving solvency and accounting frameworks. Demographic trends continue to influence product development and distribution. Japan’s share of population aged 65 and above is projected to reach 32.3% by 2035, with the old-age dependency ratio rising to 53.1% from 50% in 2023, according to GlobalData’s Macroeconomic Database. Persistently low birth rates and an aging population are supporting demand for protection products, annuities, and health-related riders, even as customer expectations and channels change.
Studies of retirement preparedness indicate gaps in both protection and savings, and insurers have been responding by developing income-oriented products and expanding offerings targeted at older policyholders. Policy reforms are also expected to influence portfolio composition. Japan plans to fully implement stricter rules linking foreign residents’ residency status to health insurance and pension records by June 2027, which may affect participation in third-sector health and related riders. Operationally, major insurers and insurtech firms are deploying digital tools and artificial intelligence across underwriting, policy administration and claims handling. Embedded offerings, data-driven personalisation, and digital alliances are altering distribution models, while brokerage consolidation is being used to manage acquisition costs and scale up distribution networks.
“Looking forward, Japan’s life insurance sector growth is expected to stabilise over the next five years. While investment volatility and regulatory scrutiny pose challenges, the sector’s profitability, capital strength, and innovation initiatives should enable life insurers in Japan to sustain growth, deepen coverage, and narrow protection and retirement income gaps,” Prasanth said. For insurance professionals across Asia, developments in Japan’s life sector – including repositioning in JGBs, capital and reinsurance strategies, and responses to demographic change – provide a detailed case study of how mature markets are adjusting to higher yields and shifting regulatory and social conditions.
