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UPDATE 1-Japan's Sumitomo Life plans to raise yen bond portfolio in Oct-March

Hideyuki Sano and Tomo Uetake
Thursday, 24 Oct 2013 | 5:57 AM ET

* May shift funds to foreign bonds if yen bond yields seen staying low

* Started removing currency hedging in April-Sept on foreign bonds

TOKYO, Oct 24 (Reuters) - Sumitomo Life Insurance Co plans to increase domestic bond holdings in the six months to March, a senior company official said on Thursday, but added that it could shift to foreign debt if domestic bond yields stay too low.

Japan's fourth-largest private life insurer with total assets of 26.5 trillion yen ($272.4 billion) also plans to gradually remove currency hedging on its foreign bond investments, the official said.

Iwao Matsumoto, general manager of investment planning at Sumitomo, said the insurer plans to keep buying 20-year Japanese bonds as it wants assets to match its long-term liability in the yen.

"If yen bond yields are seen staying low for longer than we are anticipating, then we will consider a shift to foreign bonds," Matsumoto told a news conference, adding that the insurer has already bought a "considerable amount" of domestic bonds in the first half of the financial year from April.

The 10-year Japanese government bond yield hit a 5 1/2-month low of 0.595 percent on fall in U.S. bond yields as well as the Bank of Japan's massive buying.

Sumitomo foresees Japanese bond yields staying low in October-December but rising towards 0.8 percent in the following quarter on the back of recovery in the Japanese economy.

The insurer also plans to reduce currency hedging on its foreign bond investment, Matsumoto said.

In the April-September period, the company removed hedging on some of its foreign bonds portfolio, abandoning its long-held stance to have a full currency hedging on foreign bonds.

"We've said we will remove some of currency hedging this financial year and we did so...As we expect the dollar to gradually rise against the yen we plan to gradually buy back the dollar (sold for hedging)," Matsumoto said.

He declined to quantify, however, what percentage of its foreign bonds is currency hedged at the moment and will be at the end of financial year in March.