For now, partially unsterilized intervention is perceived as a means of expanding the monetary base of Japan, a basic element of monetary policy. (The same effect, of course, is available through the purchase of domestic assets.) In time, however, as the present deflationary situation abates, the monetary consequences of continued intervention could become problematic.
The response to a lower-yield environment should not be to chase returns by investing in ever riskier assets. Rather, the focus should be on earning an appropriate return from core underwriting activity. There is much in the new Solvency II framework that should allow firms to better manage risks associated with the low interest rate environment.