UPDATE 1-Japan's Mitsui Life eyes foreign bonds amid low domestic yields

Thu Apr 17, 2014 5:01am EDT

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* Needs diversification as domestic bond yields not sufficient

* Increased currency-hedged foreign bonds by 30 bln yen in 2013/14

* Also bought a small amount of unhedged foreign bonds, plans to buy more

* To trim domestic stocks but almost reached long-term goal in reduction (Adds more comments, detail)

By Hideyuki Sano and Kentaro Sugiyama

TOKYO, April 17 (Reuters) - Mitsui Life Insurance said on Thursday that it plans to increase its holdings of foreign bonds again this fiscal year, as Japan's fifth-largest life insurer seeks to diversify its investments amid low domestic yields.

Mitsui Life plans to increase its foreign bond holdings, including those with and without currency-hedging, by about 50 billion yen ($490 million) in the year that started on April 1, its investment planning manager said.

The insurer, which has assets of 7.2 trillion yen, also expects an increase of about 100 billion yen in its holdings of yen bonds, its core assets, in the current financial year.

Investment plans by Japanese life insurers, which collectively manage more than 180 trillion yen of assets, are closely watched by financial markets.

"There are limitations (to income) if we only invest in domestic bonds because their yields are not sufficient. We would like to increase our coupon income by diversification," Yoichiro Matsuta, the head of investment planning department, told a news conference.

The 10-year Japanese government bond yield has been stuck near 0.6 percent for the past several months, due to Bank of Japan's massive bond-buying programme.

On top of U.S. Treasuries and core euro zone countries' debt, Mitsui plans to buy higher-yielding European debt such as Italian government bonds, Matsuta said.

In the year that ended in March, it added 30 billion yen to its foreign bond portfolio with currency hedging and also bought a small amount of foreign bonds without currency hedging, he added.

Matsuta also said the company plans to increase its unhedged foreign bonds this financial year more than it did last year. Mitsui had had currency hedging on almost all of its foreign bond holdings until two years ago.

Some Japanese investors including Mitsui Life have been slowly warming up to foreign currency assets since the Bank of Japan's aggressive monetary easing since late 2012 has helped weaken the yen sharply.

But many insurers say a big shift in their asset allocations is unlikely because they need to have long-term yen bonds to match their long-term liabilities in yen.

Yen bonds account for almost 70 percent of Mitsui's investments in securities.

Mitsui Life plans to trim its domestic stock holdings, a stance it has kept for years to reduce its exposure to stock market volatility.

But with its stock portfolio at about one-tenth of its peak of more than two decades ago, it has almost become small enough.

"As for stocks, we may trim them but it could end up being flat. We've been cutting stock holdings constantly but we think we are near our goal," Matsuta said.

($1 = 102.2750 Japanese Yen) (Reporting by Hideyuki Sano; Editing by Dominic Lau and Chris Gallagher)

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