TOKYO (Reuters) - Japan's fund managers lifted their bond allocations to a record high, mainly in domestic bonds, and cut those for equities to a nine-month low, a Reuters poll showed on Friday, as they remain wary of the U.S. central bank's plan to trim its stimulus and the sudden emergence of a cash crunch in China.
A survey of nine Japan-based fund managers, polled between June 13 and 21, also showed they raised their cash allocations and property exposure.
Global financial markets have been roiled by comments from Federal Reserve Chairman Ben Bernanke that the U.S. central bank plans to roll back its $85 billion a month bond-buying program, known as quantitative easing (QE), in coming months if the U.S. economy strengthens.
A Chinese central bank engineered cash squeeze to rein in rapid credit expansion and risky loans has also made investors nervous of a sharp slowdown in the world's second-largest economy.
Japanese fund managers raised the proportion of domestic bonds, which include Japanese government bonds (JGBs) and corporate debt, in their fixed income portfolio to 35.8 percent from a 18-month low of 35 percent last month.
Yields on benchmark 10-year JGBs have consolidated in a range of 0.80 to 0.90 percent in recent weeks after dropping to a record low of 0.315 percent a day after the Bank of Japan unveiled its massive easing scheme in early April, and then climbed to a high of 1.0 percent on May 23. Overall, the 10-year yield has risen 5.5 basis points so far this year.
Market participants have said they expected the JGBs to perform better than U.S. Treasuries given that the Fed was likely to pare back its stimulus, while the Japanese central bank was supporting JGBs with its asset purchases.
Spurred on by Prime Minister Shinzo Abe, the BOJ unveiled sweeping monetary stimulus on April 4, promising to inject $1.4 trillion into the economy in less than two years to stimulate sustained long-term growth.
The fund managers also raised their debt allocations to the UK to 8.1 percent, the highest since March 2012, from 7.8 percent in May, though they cut their U.S. and Canada exposure to 28.8 percent from 29.6 percent.
Their overall bond exposure was increased to 53.6 percent this month, up from 52.2 percent in May, however.
"Tapering off of QE may be the best for the U.S. economy but not necessarily for the global economy, especially when China accepts tight liquidity situation to contain financial risks and the potential harm of a reverse flow of QE money out of emerging economies is suspected," said a fund manager at a Japanese asset management firm, who declined to be identified due to company policy.
The fund managers' move to raise domestic bond holdings and cut Japanese stocks marked a stark contrast to Japan's Government Pension Investment Fund, the world's largest with a pool of $1 trillion, which said on June 7 that it was lifting local equity allocations to 12 percent from 11 percent, while lowering its JGB weightings to 60 percent from 67 percent.
CUTTING JAPAN STOCKS
Stock allocations fell to 39.7 percent from a six-month high of 41.8 percent in May, mainly due to lower weightings in Japanese stocks after Tokyo's Nikkei average .N225 tumbled 15 percent since hitting a 5-1/2 year peak on May 23 on concerns over the uncertainty of the Fed's stimulus plan, a slowdown in China and disappointment over Abe's recently unveiled growth strategy.
The fund managers cut Japanese equities allocations to 34.6 percent from 36.4 percent.
Still, the Nikkei is up 9 percent since the BOJ's April 4 announcement and has risen 30 percent so far this year.
"Although a weaker yen has raised hopes for better-than-expected corporate earnings and some optimistic views of Japan stocks have supported the rally, there's little sense that Japanese equities are undervalued," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.
"Thus, share prices may gain but the upside would be limited."
The fund managers raised their equity allocations to Asia excluding Japan to 9.8 percent from 9.0 percent, and U.S. and Canada to 33 percent, a six-month high, from 32 percent.
Still, they rated their June equity holdings as overweight at +1.0 on a scale of -3 to +3, down from +1.5 in May, while rating their bond holdings underweight at -1.0, compared with -1.2 a month ago.
(Additional reporting by Tomo Uetake; Editing by Shri Navaratnam)