April 22, 2014 / 9:56 AM / 3 years ago

UPDATE 1-Nippon Life to raise yen bond holdings in 2014/15

* Insurer to follow well worn path and raise yen bond holdings

* To increase unhedged foreign bonds when yen appreciates

* To trim hedged foreign bonds if yields rise further (Adds quotes, details)

By Shinichi Saoshiro and Hiroyasu Hoshi

TOKYO, April 22 (Reuters) - Nippon Life Insurance plans to increase yen bond holdings during this financial year as yields are expected to rises and once the yen strengthens it also aims to slightly raise holdings of unhedged foreign bonds, a company official said on Tuesday.

During the 2013/14 financial year that ended on March 31, Japan’s largest private life insurer said it had increased its domestic bond holdings by 960 billion yen to 25.17 trillion yen, or 46 percent of the total assets of around 55 trillion yen ($536 billion).

A year ago, the Bank of Japan’s radical monetary easing sparked speculation that the country’s life insurers might stampede into foreign bonds to earn higher income, but Nippon Life showed little change in investment patterns.

The insurer did increase unhedged foreign bond holdings by 450 billion yen to 2.73 trillion yen, or 5 percent of its total assets, in 2013/14, and said it would buy more when the yen strengthens.

“We do not want to buy unhedged foreign bonds at the current exchange rate (of around 102.50 yen to the dollar) but we are ready to purchase when the yen appreciates,” said Sato Kazuo, general manager at Nippon Life’s finance and investment planning department, who declined to specify a level he considered attractive.

The dollar hit a five-year high of 105.45 yen in January on expectations that the U.S. Federal Reserve will begin tapering its monetary stimulus.

But the dollar has drifted in a 101-104 range since, as concerns over emerging market economies and the Ukraine crisis fuelled demand for the safe-haven yen.

Nippon Life said it expects the dollar to trade at a median level of 110 yen in the year through March 2015. The dollar was trading around 102.52 yen on Tuesday.

As for hedged foreign bonds - which offer higher returns than domestic bonds but entail costs to hedge against currency fluctuations - Nippon Life intends keeping holdings steady or trimming them depending on yield levels.

“We expect the Federal Reserve to complete its tapering towards the end of the year, prompting a gradual rise in U.S. yields, which will obviously increase our hedging costs,” Sato said.

For the year through March the insurer reduced its holdings of hedged foreign bonds by 200 billion yen to 6.17 trillion yen, or 11 percent of its total assets.

Although only a small part of their income-generating assets, Nippon Life sees a greater opportunity coming from ordinary loans amid a dearth of investment opportunities.

“There is not a lot of attractive investment opportunities as domestic yields are still low. We are thus expanding loans that involve lending in infrastructure related projects and lending in foreign currency,” Sato said.

In the 2013/14 financial year, Nippon Life increased its loans by 10 billion yen to 7.66 trillion yen, or 14 percent of its total assets.

The benchmark 10-year Japanese government bond yielded 0.610 percent on Tuesday, within reach of a 10-month trough of 0.570 percent hit in March.

Nippon Life expects the 10-year yield to rise to 0.90 percent by March 2015 on the back of a gradual economic recovery and rising prices. ($1 = 102.5700 Japanese Yen) (Editing by Dominic Lau and Simon Cameron-Moore)

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