October 26, 2018 / 7:06 AM / 10 months ago

UPDATE 1-Dai-ichi Life may add foreign bonds without FX hedging when dollar falls below 112 yen

* Mulls to buy unhedged foreign bonds when yen strengthens

* No plan to buy JGBs, sees current yields too unattractive

* To continue selling Japanese stocks for risk control (Adds detail, more comments)

By Tomo Uetake

TOKYO, Oct 26 (Reuters) - Japan’s Dai-ichi Life Insurance will consider buying foreign bonds without currency hedging when the dollar weakens below 112 yen, senior executives said on Friday.

The dollar last traded at 112.20 yen. Although the insurer sees little upside for the dollar from the current level, it does not anticipate a sharp fall in the dollar below 105 yen during the period, they said.

Dai-ichi Life is Japan’s second-largest private life insurer and the core firm of Dai-ichi Life Holdings, with 37 trillion yen ($330 billion) of assets under its management.

As hedging costs on dollar bonds have risen and are seen remaining high, Dai-ichi expects its currency-hedged foreign bond holdings to likely fall in the six months to March 2019, Kazuyuki Shigemoto, general manager of investment planning, told reporters.

The three-month hedging cost shot up in late September to around an annualised 3.30 percent, more than the current 10-year U.S. Treasuries yield of around 3.10 percent.

Within the hedging foreign debt space, Dai-ichi looks for a rotation from U.S. Treasuries into European bonds, for which Japanese investors can earn premium, and high-yielding Australian and New Zealand bonds.

Market players closely watch Japanese investors’ stance on foreign bonds and currencies. They have bought foreign bonds aggressively in recent years as an alternative to low-yielding domestic debt, including Japanese government bonds.

Dai-ichi added its domestic bond holdings are likely to fall further in the October-March period as the insurer expect their yield remain low.

“We don’t see super-long JGBs as our realistic investment options for now. The 20-year yield around 0.6 percent and the 30-year around 0.9 percent are way too unattractive for us,” Shigemoto told reporters.

But Dai-ichi also thinks an economic downturn is looming on the horizon of the U.S. economy.

“U.S. enonomy has been at full employment for 22 months already. From past records, we think a recession is possible in about a year or two,” said Shigemoto.

With an eye on that, Dai-ichi plans to reduce its holdings of domestic stocks in the six months through March.

“The stocks have been sold heavily recently but when they bounce back, we plan to sell and lock in profits for risk control reasons,” he added.

Dai-ichi also plans to continue adding alternative assets, including hedge funds, private equities and real estates. ($1 = 112.20 yen) (Reporting by Tomo Uetake; Editing by Chris Gallagher and Gopakumar Warrier)

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