UPDATE 1-Dai-ichi Life says will not buy JGBs at current yields

TOKYO, April 25 Fri Apr 25, 2014 2:04am EDT

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TOKYO, April 25 (Reuters) - Dai-ichi Life Insurance Co , Japan's second-largest private life insurer, will not buy Japanese government bonds at current low yields, a senior company official said on Friday.

The institutional investor, with total assets of about 35 trillion yen ($342 billion), instead plans to allocate more funds to foreign bonds in the financial year to March and is also warming to domestic stocks and other riskier assets.

The stance marked a clear departure from the firm's conservative, government bond-centred investment approach until March last year as the Bank of Japan adopts aggressive monetary easing to encourage investors' risk-taking.

"After the global financial crisis, we had been trying to restrain risk in investments... But from the last financial year we've changed our stance. We are now seeking to raise our revenues by taking risk," said Tetsuya Makita, general manager of investment planning at Dai-ichi Life.

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

For many years, Japanese life insurers have been increasing domestic bond holdings while cutting Japanese stocks and occasionally dabbling in foreign bonds, mostly with currency hedging, as they put top priority on risk control.

But Dai-ichi Life appears to be reversing the long-term trend by reducing its domestic bond holdings as Japanese government bonds yields have fallen to painfully low levels for investors.

The benchmark 10-year Japanese government bond yield has been stuck around 0.6 percent in recent months, its lowest level except for two short periods below that level, one in 2003 and the other in 2013, as a result of the Bank of Japan's massive bond purchases.

"We hardly bought any JGBs in October-March... If their yields rise, we will buy super-long bonds but if their yields stay at current levels, it is difficult to buy JGBs," Makita told reporters in a news conference.

"We think it is unlikely to have such a chance to buy them this financial year. So we will likely have to allocate funds to currency-hedged foreign bonds, loans and depending on currency levels, unhedged foreign bonds as well," he added.

Dai-ichi expects the dollar to strengthen against the yen as the U.S. currency is supported by expectations of a future rate hike by the Federal Reserve while the yen stays under pressure from the BOJ's easing and expectations of additional stimulus.

While Dai-ichi has no plan to sell JGBs it holds, its holding of domestic bonds will likely fall as they invest the proceeds from maturing bonds elsewhere, Makita also said.

Dai-ichi already bought foreign bonds actively in the financial year that ended in March.

Its holdings of foreign bonds without currency hedging rose by 370 billion yen at the peak, while those with hedging also increased by 160 billion yen.

In the year that began in April, Dai-ichi plans to increase other risk assets, including both Japanese and foreign stocks and also seeks to step up its investment in new growth areas such as renewable energy and emerging markets.

The company raised the three-year target, beginning last financial year, of investing 150 billion yen in growth areas to 200 billion yen.

In emerging markets, it added Mexico, Brazil and the Philippines to its stock portfolio and mainland China, India, Indonesia and Brazil to its bond portfolio last financial year, Makita also said. (Reporting by Hideyuki Sano; Editing by Kim Coghill)

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