* Plans to buy Y300 bln foreign bonds, boost corporate bonds
* Will reduce FX hedging if yen rises
* Broadened investment to periphery Europe
* Will avoid domestic bonds if yields stay low
* Sees China economy slowing but not hard-landing (Adds details)
By Hideyuki Sano and Noriyuki Hirata
TOKYO, Oct 20 (Reuters) - Sumitomo Life Insurance Co plans to buy about 300 billion yen ($2.5 billion) of foreign bonds in the six months to March, seeking higher returns than those on Japanese bonds, its general manager for investment planning said on Tuesday.
Iwao Matsumoto also told a news conference that Japan’s fourth-largest private life insurer, with total assets of about 25 trillion yen, could reduce currency hedging on foreign bonds if the yen rises to near 115 to the dollar.
“Amid the Bank of Japan’s easing, Japanese interest rates are unlikely to rise. We have to look into diversifying our investment, mainly through foreign bonds,” Matsumoto said.
The institutional investor had bought more than 500 billion yen of foreign bonds in the first half of the current financial year from April, he said.
Matsumoto also said that the firm has broadened its investment targets, buying assets in peripheral European countries and a few other countries in North America and Oceania.
The company wants to boost holding of foreign corporate bonds in particular in the second half of the year, he said.
Sumitomo Life is also considering reducing its currency hedging on its foreign bond holdings if the yen edges up near 115 yen to the dollar, as it expects the yen to weaken over the longer term. It is around 119 now.
It expects the U.S. Federal Reserve to raise interest rates early next year, while the Bank of Japan is expected to keep its stimulus in place, with both helping to support the dollar against the yen.
Although twin concerns about U.S. rate hikes and slowdown in China have rattled financial markets since August, Sumitomo Life expects markets to regain stability towards March.
“Property development and investments in China will probably need structural adjustment for years. But the Chinese authorities are expected to take steps such as infrastructure investment and cut banks’ reserve requirements,” he said.
“So we are expecting a soft-landing to a slower growth rate, not a sudden sharp decline in growth,” he added.
The investor plans to keep holdings of both Japanese and foreign equities steady in the six months to March, though it would consider hedging if it sees a higher risk of market decline, Matsumoto said.
Sumitomo now expects Japan’s Nikkei share average to stand around 17,500 points next March, below the forecast of 18,500 it made in April. It ended at 18,207 on Tuesday.
$1 = 119.44 yen Reporting by Hideyuki Sano; Editing by Chang-Ran Kim