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TOKYO, Apr 18 (Reuters) Japan's biggest life insurers are shying away from buying foreign bonds and increasingly putting money into Japanese fixed-income securities, lured by the rise in benchmark yields to levels not seen in seven years.

The country's top nine insurers, who manage nearly $1.4 trillion of assets, or nearly the size of Italy's economy, are gradually bringing more funds back home in a shift that analysts say could eventually help the yen recover.

In a series of interviews with Reuters about their investment plans for the new business year, insurance executives said they are looking to buy only small amounts of foreign bonds on an unhedged basis whenever the dollar and euro weaken against the yen.

With the euro hovering near all-time highs against the yen and the dollar not far from 2-1/2-year peaks hit in December, insurers are afraid of paying up for foreign bonds and potentially losing money if those currencies fall.

At the same time, foreign bonds hedged against currency swings continue to fall out of favour. Short-term rates abroad have been rising and that makes such hedging pricey and erodes the income from higher coupons.

All nine insurers said that overseas debt was expensive to buy while the dollar/yen traded around 118 yen and the euroyen 144 yen on Tuesday.

''The yen's movements will have a significant impact on our appetite for unhedged foreign debt,'' said Hirofumi Watanabe, manager of investment planning at Meiji Yasuda Life Insurance Co., the nation's third-largest life insurer.

''Given the yen's weakness at the moment, it's difficult to buy either U.S. or European bonds.'' They anticipate that the dollar/yen will trade roughly around 105-125 yen this year, while euro/yen trading is seen hovering around 125-150 yen. Most said that they would not consider buying overseas bonds until the yen rose above 110 yen per dollar.

Japan's top nine life insurers together hold around 16.5 trillion yen ($140.1 billion) in foreign bonds, roughly around 7 trillion yen of which is unhedged. The mammoth size of their investments make them a force to be reckoned with in the currency market.

During the five years of the Bank of Japan's quantitative easing policy, the buy-and-hold insurers flocked to foreign debt, particularly dollar-denominated bonds, to boost the average return on their portfolios.

But the yen's 15 percent plummet against the dollar since hitting a five-year high in January 2005 and its slide to a lifetime low against the euro this month have soured sentiment for foreign debt.

In addition, the Federal Reserve's series of interest rate rises to 4.75 percent from 1 percent in less than two years has sharply jacked up the cost of hedging dollar bond purchases.

Fukoku Mutual Life Insurance, the nation's No. 9 life insurer, said it planned to buy 90 billion yen in unhedged bonds, half of what it picked up last year. It does not own any hedged overseas bonds.

Nippon Life Insurance Co. and Mitsui Life Insurance Co. both plan to shed 200 billion yen of hedged foreign bonds through March, while Asahi Mutual Life Insurance Co. says it plans to dump all 40 billion yen of its hedged holdings.

Nippon Life is Japan's largest life insurer, while Mitsui Life the fifth-largest and Asahi the seventh.

FOCUS ON YEN BONDS Expectations that the BOJ could begin raising rates possibly within the next few months has led to a surge in Japanese government bond yields, and many insurers said a further rise would prompt them to boost their allocations of yen bonds.

The 10-year yield has shot up around 40 basis points in the past month since the central bank ended its quantitative easing policy. On Tuesday it soared to 2 percent, a level not seen since 1999.

Many said they were interested in buying around current levels, and a handful even said that they could use funds from sales of hedged foreign bond holdings to pick up domestic debt.

With the BOJ seen gearing up for a monetary tightening cycle as the economy crawls out of a nearly eight-year spell of deflation, some insurers saw more room for JGB yields to keep climbing.

''People are expecting the economy to keep improving down the line, so it's not just the end of the zero-rate policy that we have to think about when we consider our investment plans,'' said Yuuki Sakurai, general manager of financial and investment planning at Fukoku Mutual Life.

The insurers anticipate the 10-year yield to trade roughly around 1.4-2.4 percent this year.

($1=117.81 Yen) REUTERS PV SND1452