* Q1 profit 104.5 bln yen, up 25.7 pct on year
* Banking unit Q1 profit 89.4 bln yen, up 31.6 pct
* Insurance unit Q1 profit up 24.3 pct (Adds banking and insurance units results)
By Thomas Wilson
TOKYO, Aug 10 (Reuters) - Japan Post Holdings Co Ltd on Thursday reported a 25.7 percent increase in quarterly profit, as gains from foreign exchange trading at its banking unit offset declining interest on its huge holdings of Japanese government bonds.
Japan Post posted a net profit of 104.5 billion yen ($949.18 million) for the three months through June, versus 83.13 billion yen a year earlier.
The banking unit, Japan Post Bank Co Ltd, reported a net profit of 89.4 billion yen over the period, up 31.6 percent, powered by a four-fold rise in profit from forex trading.
Japan Post Holdings, responsible for the nation's 24,000-strong network of post offices, owns 74 percent of the banking unit and relies heavily on it for its overall performance.
The unit - Japan's biggest deposit taker - depends in part on returns from its holdings of Japanese government bonds, instead of making money from loans like commercial lenders.
Japan Post Bank has been diversifying its investment assets to boost returns. In April-June, its holdings of low-yield JGBs totalled 32.2 percent of its total assets, or 66.9 trillion yen, down slightly from the 33.2 percent at the end of March.
The Bank of Japan last year launched its negative interest rate policy, a move designed to push financial institutions to put assets to more productive use.
The firm's third listed unit, Japan Post Insurance Co Ltd , said annual profit rose 24.3 percent in the period to 24.1 billion yen as premiums from new contracts increased. ($1 = 109.9900 yen) (Reporting by Thomas Wilson; Editing by Himani Sarkar and Christopher Cushing)