TOKYO (Reuters) - Japan's major life insurers are slowly increasing the pace of Japanese government bond (JGB) purchases in an improved investment environment, although remain restrained as they assess how far yields could rise.

The end of negative rates had led to an improvement in the investing environment, companies said, with additional rate hikes this year seen as an opportunity for JGB yields to rise further.

Most life insurers expect the Bank of Japan (BOJ) will raise policy rates one more time before the end of the year. They also expect that will push up the JGB's yield curve.

The yield on 30-year JGB, the main investment target of the life insurers, currently sits at 1.95%, exceeding the big insurance companies' average liability cost of 1.8%.

"We are buying 30-year JGBs now as the yield has become attractive," said Nippon Life, the country's largest private insurer.

Other life insurers are taking more restrained views, believing the yield will rise higher in the near future. "We prefer to wait until the 30-year bond yield will exceed 2%," said Dai-ichi Life.

Meiji Yasuda Life forecasts the 30-year yield will climb to 2.1%-2.2% in the current fiscal year through March, as the bond market prices in another rate hike.

Still, market participants predict the 30-year yield rise could slow down somewhat after it surpasses 2% as demand for the JGBs among life insurers increases.


While life insurers assess the improvements in JGB yields, a tailwind from an economic value-based solvency regulation, which will be introduced in Japan next April, has run its course.

"We bought enough super-long JGBs to meet the regulatory requirements over the past 3-4 years. Now we can make investment decision solely based on the attractiveness of the yield," said Akira Tsuzuki, executive officer at Nippon Life.

Meiji Yasuda, Sumitomo Life and Japan Post Insurance also announced similar shifts to buying based purely on investment value rather than for compliance purposes.

Despite the BOJ's historic exit from negative interest rates in March and expectations for yields to climb on the back of additional rate hikes, life insurers are still not ready to go super aggressive in the JGB market.

(Reporting by Tomo Uetake; writing by Brigid Riley, Editing by William Maclean)

By Tomo Uetake and Brigid Riley