Nippon Life to cut foreign bond holdings without FX hedge

TOKYO, Oct 25 (Reuters) - Nippon Life Insurance, Japan’s biggest insurer, plans to reduce holdings of foreign bonds that are not currency hedged in the half year to March, a top investment planning executive said on Monday.

The insurer expects the yen to strengthen to around 108 per dollar on the view that markets’ U.S. inflation and rate hike expectations are overdone, Shinichi Okamoto, executive officer, finance and investment planning, told a news conference.

“We agree with the consensus view that various supply constraints will not go away soon, but we think now is the worst time as we hear anecdotal evidences of recovery. We don’t expect inflation to keep rising,” he said.

The Japanese yen weakened sharply in recent weeks against the dollar and other currencies on expectations that inflation will prompt U.S. Federal Reserve and many other central banks to raise interest rates sooner than thought.

Although bets that the Fed could raise rates next year have increased in recent weeks, Nippon Life expects the Fed will wait until 2023 before raising rates and as such a view will prevail, the dollar will weaken to a range around 108 yen by March.

The dollar rose to a four-year high of 114.695 yen last week and last stood at 113.72 yen.

Wary of the risk of a higher yen, Nippon Life plans to reduce the holdings of its foreign bond investment without currency hedge in the six months to March, Okamoto said.

The company, which has 72.7 trillion yen ($639 billion) in assets, instead plans to step up yen bonds and asset swaps through which foreign currency bonds will be effectively converted to yen.

It also plans to increase holdings of foreign stocks and alternative assets for diversification.

$1 = 113.72 yen Reporting by Hideyuki Sano. Editing by Jane Merriman