UPDATE 1-Manulife to enter Japan mutual fund market

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TOKYO, Sept 9 (Reuters) - Manulife Financial Corp (MFC.TO), North America's No. 2 life insurer, will enter the Japanese mutual fund market, aiming to tap the $7 trillion of household financial assets still parked in cash or deposit accounts.

Manulife told an investor conference in Tokyo on Tuesday that it had obtained a licence for investment trusts, which are similar to mutual funds, and planned to offer a fund invested in various global assets next month.

The market is already saturated with dozens of domestic fund companies such as Nomura Asset Management and Daiwa Asset Management, and several big overseas investment firms including Fidelity Investments and Invesco Ltd (IVZ.N).

But Manulife reckons there is still plenty of room for growth. About half of Japan's $14 trillion in household financial assets are in cash or deposits earning close to no interest, and some of that is expected to flow into mutual funds.

By comparison, just 14 percent of assets in the United States are kept in deposits. Mutual funds also make up a much larger portion of invested assets in the U.S. than in Japan.

"That discrepancy doesn't really make sense and that difference is worth in a Japanese context hundreds of billions of dollars. So we would like a piece of that," said Craig Bromley, executive vice president and general manager Japan.

Manulife already has a solid business in Japan that accounted for 7 percent of the group's overall net income last year.

Its major products include variable annuities, a hybrid of life insurance and mutual funds that have struck a chord with Japan's growing number of retirees eager to shift money out of deposits but worried about the risk of a pure stock or bond fund.

Hartford Financial Services Group Inc (HIG.N), one of Manulife's key competitors in variable annuities, also said earlier this year that it was considering entering Japan's investment trust market.

Manulife did not specify how it would sell the mutual funds but said that it would look to leverage its existing network, which includes 39 banks and brokerages distributing its variable annuity products.

Manulife's key distributors include top broker Nomura Holdings (8604.T) and Mitsubishi UFJ Financial Group (8306.T), the country's largest bank. It is also in negotiations with 20 regional banks to expand its network, Bromley said.

"We are trying to exploit our relationships with banks throughout Japan," Bromley said. (Reporting by Nathan Layne and Hideyuki Sano; Editing by Chris Gallagher)