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TOKYO, April 14 (Reuters) - Japan's Aioi Nissay Dowa Insurance, with assets of 3 trillion yen ($27.5 billion), plans to trim its holdings of low-yielding Japanese bonds and increase foreign debt this fiscal year in the hopes of pocketing better returns, a senior official said.
Faced with low domestic yields driven down by the Bank of Japan's extensive monetary easing, Japanese institutional investors have increasingly sought better returns abroad. The benchmark 10-year Japanese government bond yield declined to a five-month low this week, nearly touching zero percent.
"We are looking to slightly reduce our yen bond holdings this year," Akihito Ichikawa, general manager at Aioi Nissay Dowa's investment planning department, told Reuters in an interview.
"We will not reinvest all the maturing debt back into yen bonds and instead increase investment into foreign bonds and alternative assets."
Aioi Nissay Dowa is the non-life insurance arm of MS&AD Insurance Group Holdings Inc, Japan's biggest property and casualty insurance group.
Yen-denominated debt, which comprise more than half of the insurer's assets, will remain its core investment, Ichikawa said.
The insurer declined to specify how much more it planned to buy in foreign debt, which currently makes up around 20 percent of its total assets.
Japanese insurers' net buying of foreign bonds hit a record high of 7.76 trillion yen last financial year, according to Ministry of Finance data. (tmsnrt.rs/2oZOJ7E)
To prepare for potential market turbulence resulting from geopolitical developments, particularly European political events, the insurer said it has hedged its euro-denominated holdings through the use of currency options.
Ichikawa said they have already finished reducing their exposure to French government bonds last year ahead of the upcoming French elections.
France holds a two-stage election for president on April 23 and May 7 and the possibility of a win by the anti-European Union candidate Marine Le Pen has kept global investors on edge.
As for domestic equities, representing around 30 percent of its portfolio, the insurer said it will continue to trim these assets this fiscal year, which runs through March 2018.
$1 = 109.1800 yen Reporting by Shinichi Saoshiro and Takefumi Ito; Editing by Randy Fabi