* Plans to boost foreign bonds without FX hedging by about Y50 bln
* To increase foreign corporate bonds by around Y50 bln
* Sees dollar to strengthen vs yen on solid U.S. fundamentals
* Expects market to be less volatile than last year (Updates with graphic, bullet points and additional RICs)
By Hideyuki Sano and Yoshiko Mori
TOKYO, April 13 (Reuters) - Sompo Japan Nipponkoa Insurance plans to cut currency hedging on its U.S. Treasuries holdings in the fiscal year to March 2018, with the dollar expected to strengthen gradually, the company’s investment planning executives said on Thursday.
The institutional investor also plans to step up investment in U.S. corporate bonds and other credit products to enhance yields while keeping investments in low-yielding domestic bond in check, they said.
“When you look at economic fundamentals there’s no denying that the U.S. economy is firm. And that suggests the dollar’s fair value should be above its current levels,” said Hidetoshi Kurachi, manager of investment planning.
Japanese investors have stepped up buying in foreign bonds in recent years as alternative to low-yielding domestic bonds, helping to curb their yields. Last financial year, Japanese insurers bought a record 7.76 trillion yen ($71.3 billion) of foreign bonds.
The insurer, the core firm of Sompo Holdings group, expects the dollar to rise to 116 to 120 yen at the end of the current financial year next March, compared to below 109 yen now.
“Last financial year, we were expecting high market volatility and we were positioned to deal with that. But this year, we expect less choppy markets,” Kurachi said.
Although the U.S. administration could veer towards more protectionist measures, which could trigger retaliation from trade partners thereby crimping world trade, it does not think that risk is big at the moment, he said.
Against that backdrop, the company plans to boost risk exposures by reducing currency hedging on foreign bonds and buying more corporate bonds.
Japanese investors typically make currency hedging on a large part of their foreign bond investment, paying a hefty hedge cost.
The investor plans to shift around 50 billion yen of funds from currency-hedged foreign bonds to unhedged ones in the current financial year, Kurachi said.
Sompo Japan also plans to add around 50 billion yen to its portfolio of corporate bonds, he added.
The firm has no plans to increase domestic bonds, whose yields remain low due to the Bank of Japan’s quantitative easing and negative interest rates, Kurachi also said.
Sompo Japan is looking to cut its holding of Japanese stocks by around 100 billion yen as a part of its medium-term plan to reduce shares it has held for cross-holding and other business purposes.
($1 = 108.88 yen)
Reporting by Hideyuki Sano; Editing by Chang-Ran Kim and Sam Holmes