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Financials

UPDATE 1-Japan's Fukoku Life plans to boost stocks, foreign bonds without FX hedge

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TOKYO, April 14 (Reuters) - Japan’s Fukoku Mutual Life Insurance plans to step up investments in risk assets such as stocks and foreign bonds, seeking portfolio diversification to secure a steady income to offset low global bond yields, a senior official said.

Japanese life insurers have been big players in the U.S. and European bond markets for many years as the Bank of Japan’s aggressive easing has shrunk domestic bond yields.

While Fukoku Life expects markets to remain volatile for the time being, it plans to increase the holding of Japanese stocks by 20 billion yen ($185 million) and foreign stocks by 50 billion yen in the current year through March, Yusuke Onodera, general manager of investment planning at Fukoku, said on Tuesday.

Global share prices plunged last month on fears over the economic fallout from the novel coronavirus.

Government debt yields have also slumped to record levels in the United States and many other countries as central banks slashed interest rates to cushion their economies from the impact.

“As yields on major government bonds have fallen to extremely low levels, it is difficult to earn income from traditional assets,” Onodera told Reuters.

“The coronavirus shock has reminded us that the volatility of stocks is high so we need to manage risk carefully,” Onodera added.

In the financial year ended March 31, Fukoku increased cash holdings by 100 billion yen to avoid risks and raised its domestic stock holdings by 50 billion yen, 10 billion yen lower than planned, Onodera said.

The firm expects the coronavirus infections to subside during the first half, but even after that a V-shaped recovery will be difficult, he said.

Fukoku also plans to increase foreign bond investment without currency hedge, as the firm sees limited risk of sustainable gains in the Japanese yen.

Most Japanese investors take currency hedge on a large part of foreign bond investments because the yen tends to rise at time of economic stress, widening losses on their foreign investments.

In the year ended March 31, Fukoku increased currency-hedged investments by 10 billion yen while cutting those without currency hedge by 40 billion yen.

The Japanese yen hit a four-year high of 101.18 per dollar last month, rising more than 10% in a few weeks.

“The yen briefly strengthened to around 101 but we have not seen it constantly rising. So rather than paying extra hedge costs, we would like to seek higher returns by controlling risk,” Onodera said.

$1 = 107.7100 yen Reporting by Hideyuki Sano, Mariko Sakaguchi, Editing by Chang-Ran Kim and Sherry Jacob-Phillips

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