* To increase unhedged foreign bond holdings in 2H when yen rises
* Dollar-denominated bonds to remain their foreign debt mainstay
* May increase super long JGBs in 2H if yields rise (Adds details and quotes)
By Shinichi Saoshiro and Yoshiyuki Osada
TOKYO, Oct 25 (Reuters) - Japan’s Meiji Yasuda Life Insurance Co plans to increase foreign bond holdings without currency hedges in the second half of the fiscal year through March 2019, while reducing hedged foreign bonds, a senior company executive said on Thursday.
The country’s third-largest private life insurer with assets of around 38.9 trillion yen ($347.41 billion), also said it aimed to keep its holdings of yen bonds steady in the second half.
Japanese life insurers have increasingly sought better returns from foreign bonds over the years as the Bank of Japan’s easy monetary policy has driven domestic debt yields lower.
But rising U.S. interest rates has made it more expensive for Japanese investors to maintain currency hedges on their dollar-denominated debt.
“We plan a shift to unhedged from hedged foreign bonds in the second half timed with phases of yen appreciation,” Toshihiko Yamashita, chief executive of Meiji Yasuda Life’s investment division, said at a news conference.
The insurer holds about 7.38 trillion yen, or 19 percent, of their assets in foreign bonds and said about 40 percent of the holdings are unhedged.
Yamashita said about 85 percent of their foreign bond holdings were dollar-denominated.
“Dollar-denominated bonds will remain our mainstay foreign bond holdings. The dollar offers high yields. We also think other currencies entail greater risk,” Yamashita said.
Meiji Yasuda Life plans to direct their hedged foreign bond investment in the second half to assets that offer yields that are high enough to offset currency hedging costs.
As for their unhedged foreign bond investment, the Yamashita said the insurer will look to bonds that offer liquidity such as U.S. Treasuries.
Meiji Yasuda Life plans to keep its overall holdings of yen bonds steady in the second half, but added that it may increase super long Japanese government bond (JGBs) holdings if yields rise.
Super long JGB yields have nudged up recently, with those on the 30-year bond climbing to a 2-1/2-year peak earlier this month.
Yields have risen after the central bank in July said it would allow the benchmark interest rate it guides under its yield curve-control scheme to move in a wider range, a change that was perceived by some investors as a small step towards policy normalisation.
$1 = 112.0300 yen Reporting by Shinichi Saoshiro Editing by Chang-Ran Kim & Simon Cameron-Moore