October 25, 2018 / 12:33 AM / 23 days ago

Japan's Kampo Insurance plans to increase foreign bond investments

* Plans to increase holdings of FX-hedged foreign bonds

* Expects holdings of domestic debt products to fall

* Plans to increase alternative assets

* Cautious on selling yen, eyes U.S. recession risk

By Hideyuki Sano and Tomo Uetake

TOKYO, Oct 25 (Reuters) - Japan Post Insurance Co plans to increase its holdings of currency-hedged foreign bonds and trim those of domestic debt in the half year through March 2019, investment planning officials said.

Japan Post Insurance, also known as Kampo, does not plan to increase foreign bonds without currency hedging, wary of risks that the safe-haven yen could strengthen, officials also said.

In the six months to September, Kampo increased currency-hedged foreign bond investment and cut domestic bonds and it plans to continue with the shift to foreign bonds in the current half year, officials said.

Its main target is U.S. corporate bonds but as the cost of dollar hedging has risen, it is also allocating funds to bonds in Europe, including the euro and some other currencies, said Ryosuke Fukushima, general manager of investment planning.

As the cost of currency hedging is tied closely to interest rates, dollar hedging costs have risen due to the U.S. Federal Reserve’s steady rate hikes.

Although rising hedging costs have prompted some insurers to bring some funds back to domestic bonds, Kampo is still looking to foreign bonds for yield enhancement.

Japan Post Insurance officials said the firm was cautious about buying foreign bonds without currency hedging, considering the potential rise in the yen a serious risk.

In fact in the last half year, it reduced currency-hedged holdings of foreign bonds, officials said.

“We expect the U.S. economy to keep growing firmly for now. But U.S. long-term interest rates will stay at high levels and next year markets may start to pay attention to risk of U.S. recession,” said Shigeaki Asai, senior general manager of investment planning.

“At that point, the yen could strengthen,” Asai added.

Kampo sees the dollar trading between 100 and 120 yen in the current half year. The U.S. currency traded at 112.03 yen on Thursday.

Kampo also plans to step up investment in alternative assets, including private equities, hedge funds and real estates, both internally and through Japan Post Investment Corp.

Reporting by Hideyuki Sano and Tomo Uetake Editing by Shri Navaratnam

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