TOKYO, Oct 5 (Reuters) Japan's Fukoku Mutual Life Insurance Co. said on Friday it had actively bought unhedged euro bonds in the past six months and was likely to buy more euro debt in the second half of the business year that started earlier this week.
The nation's ninth-largest life insurer by assets, which manages about 5.8 trillion yen ($50 billion) of assets on behalf of policy holders, said in an interview with Reuters that the insurer is attracted to euro debt as it expects both the European single currency and euro zone interest rates to climb.
''What we want to buy is euro-denominated assets if the gap between Japanese and overseas interest rates remains wide,'' said Yuuki Sakurai, Fukoku's general manager of financial and investment planning.
''We also believe the dollar is likely to fall, while the euro is expected to rise,'' Sakurai said.
Japanese life insurers have been big buyers of foreign bonds for the past several years as they seek to improve their returns while domestic interest rates remain so low.
Fukoku increased its foreign debt holdings by 100 billion yen in the first half of the business year, and the majority of the rise was in euro bonds, said Sakurai.
Fukoku is less bullish about dollar bonds as it expects the U.S.
subprime problems to linger, keeping the U.S. economy under pressure and the dollar on a downward trend, Sakurai said.
Sakurai said that Fukoku has already boosted its holdings of foreign bonds enough for the business year to the end of March.
In fact, the main task in its foreign debt investment for the next six months will be to reshuffle its portfolio to shore up profit performance rather than boost the volume of its assets.
As part of this move, Fukoku is likely to buy more euro, Australian dollar and Canadian dollar-denominated bonds, while it will shed dollar bonds, Sakurai said.
''We don't want to increase dollar bonds, with the economy unlikely to pick up much and the dollar's status as the key currency slipping,'' said Sakurai.
Japan's top nine insurers held a total of roughly $1.4 trillion in assets -- nearly the size of the economy of Italy ($1.7 trillion) -- and their investment plans are closely watched in the market.
Fukoku increased its holdings of yen bonds by 20 billion to 30 billion yen in the first half of the fiscal year, less than the 50 billion yen rise it planned six months ago, Sakurai said.
''We didn't meet our target because government bond yields did not rise,'' said Sakurai.
Fukoku plans to buy yen bonds if the 10-year Japanese government bond yield climbs to 1.8 percent and raise its allocation to JGBs if 10-year yields top 1.9 percent.
The 10-year yield hovered just below 1.7 percent on Friday after hitting a 19-month low of 1.500 percent last month during the height of the turmoil in global credit markets.
REUTERS KR PM1411