Fukoku Life cautious on dollar assets

TOKYO (Reuters) - Japan's Fukoku Mutual Life Insurance Co is wary of investing in dollar-denominated assets due to a slowdown in the U.S. economy and concerns about the currency's long-term prospects, the insurer said on Wednesday.

Fukoku, the nation's ninth-largest insurer, reduced its exposure to dollar-denominated assets while increasing allocation to euro-denominated assets in the business year that ended in March.

"We are still cautious about increasing exposure to the dollar," Yuuki Sakurai, Fukoku's general manager for financial and investment planning, told the Reuters Investment Summit in Tokyo.

Fukoku, which manages 5.7 trillion yen ($53.77 billion) of assets on behalf of policy holders, may increase its exposure to the Australian dollar and may slow the pace of any reduction in its allocation to euro-denominated assets, Sakurai said.

"If you look at the current situation in the United States, the economy is worsening faster than in Europe," he said, adding that the euro was holding up pretty well despite signs of weakness in the French and German economies.

Japan's top nine insurers held roughly $1.6 trillion in assets as of September 2007 -- nearly the size of the economy of Italy -- and their investment plans are closely watched in the market.

Sakurai said he harbored doubts about the dollar's longer term prospects.

"If you think that a paradigm based on the dollar may be starting to change and that the euro's weight globally may come close to matching the dollar's presence, the dollar might fall to 80 yen in the future," Sakurai said.

"I am saying something a bit extreme, but the dollar might fall below 50 yen 10 years from now," he said.

The dollar, which stood at around 106.50 yen on Wednesday, has risen 11 percent against the yen after sinking to a 13-year low of 95.77 yen in March, but is still 14 percent below a 4-½ year high of 124.14 yen hit in June 2007.

Fukoku plans to increase its overseas securities holdings by 80 billion yen in the business year through next March, including yen-denominated foreign bonds such as Samurai bonds, Sakurai said.

Fukoku Life's stance when the current business year started in April was to avoid taking foreign exchange risks. But Samurai bonds do not look very attractive now, because Japanese interest rates have not risen much, he said.

"Even if you gain some spreads from Samurai bonds, it does not mean that returns will rise that much," Sakurai said.

Samurai bonds are yen bonds issued in Japan by non-Japanese entities.

The Samurai bond market has flourished this year, with many first time issuers from overseas rushing to tap Japanese investors as the global credit crisis makes lenders wary in the United States and Europe.

Asked about domestic equities, Sakurai said now might be a good time to increase exposure when adopting a two- to three-year investment horizon.

Japan's benchmark Nikkei share average fell around 12 percent for the first half of this year, its worst showing since the first half of 1995 when it lost 26 percent.

But it gained about 8 percent in the April-June quarter, compared to a 7 percent fall in the U.S Dow Jones industrial average .DJI. (Reporting by Masayuki Kitano and Akiko Ishiwata; Editing by Tony Munroe)