October 20, 2017 / 4:58 AM / 9 months ago

INTERVIEW-Japan's Taiyo Life to keep increasing foreign bond investment

* To increase foreign debt in H2 due to low domestic yields

* To slightly reduce Japan bond holdings in H2

* Increased Japan stock investment in H1, to keep it steady in H2

* Geopolitics a risk, but not seen leading to global recession

* Sees USD/JPY at 120 yen, US 10-yr yield at 2.80 pct by March-end

By Shinichi Saoshiro and Takefumi Ito

TOKYO, Oct 20 (Reuters) - Japan’s Taiyo Life Insurance, a unit of T&D Holdings, plans to continue increasing its foreign bond holdings in the second half of the financial year through March 2018, a senior official told Reuters on Friday.

Japanese institutional investors have increasingly sought better returns abroad, as they face low domestic yields, which have been driven down by the central bank’s extensive monetary easing.

“There are not many yen-denominated bonds out there that offer necessary returns when we try to reinvest proceeds from maturing debt,” said Takeshi Negama, general manager at Taiyo Life’s investment planning department.

“We will therefore retain our investment focus on foreign bonds and continue to increase these assets in the second half.”

Taiyo Life, which manages about 7.3 trillion yen ($64.49 billion) in assets, said it aims to slightly decrease its yen-denominated bond holdings in the second half.

The insurer increased foreign bond holdings in the first six months of the fiscal year through September, mainly dollar-denominated debt.

“For dollar-denominated bonds, we increased mostly investment-grade corporate and supranational debt rather than Treasuries in the first half,” Negama said.

“We have increased our exposure to unhedged foreign bonds based on expectations towards the yen weakening against the dollar on strong U.S. fundamentals.”

Taiyo Life forecasts the dollar to appreciate to around 120 yen by March-end 2018, from the current 113.20 yen.

In the first half, the insurer increased holdings of Japanese stocks, which brushed aside geopolitical concerns, such as tensions over North Korea, to touch 21-year highs this week.

“We increased our domestic equity investments with the global economy, led by the United States, on a solid footing. Geopolitical risks do exist, and while they may cause temporary shocks, we do not think they will cause a global recession,” Negama said.

For the second half, the insurer said it plans to keep its Japanese equity holdings steady as it expects the ongoing rally in stocks to peter out in the near term.

The Nikkei has risen steadily this month, supported by hopes that Japanese Prime Minister Shinzo Abe’s ruling coalition will win the general election on Oct. 22 and keep its economic policies going.

“A ruling coalition win appears to have been mostly priced in and that won’t be a bad outcome for the market. But a win is unlikely to result in a rosy future with inflation rising, wages improving and the economy rapidly expanding,” Negama said.

The insurer expects the 10-year U.S. Treasury yield to move in range of 2.0-3.2 percent through the second half and settle towards 2.80 percent by March-end. The 10-year yield was at 2.36 percent on Friday. ($1 = 113.2000 yen) (Reporting by Shinichi Saoshiro and Takefumi Ito; Editing by Biju Dwarakanath)

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