UPDATE 1-Meiji Yasuda Life neutral on foreign debt in H2

Updates with quotes, details, background)

By Satomi Noguchi

TOKYO, Oct 10 (Reuters) - Japan's Meiji Yasuda Life Insurance Co said on Wednesday it plans to take a neutral stance on foreign bonds in the second half of the fiscal year after increasing its unhedged holdings by a net 80 billion yen ($680 million) in the first half.

The nation's third-largest life insurer said at a news conference that it shifted funds originally allocated for yen bonds in the first half into foreign debt because that offered higher returns.

"We shifted 80 billion yen of 100 billion funds which were originally planned to buy yen bonds to foreign bonds due to their higher returns," said Yasuharu Takamatsu, a deputy president.

The insurer, which does not hold any hedged overseas debt positions, added that it plans to reinvest 37 billion yen in maturing foreign bonds in October-March, after reinvesting roughly the same amount in the first half.

Takamatsu said that of the maturing foreign bonds the insurer expects to reinvest, around 17 billion yen will go to U.S. bonds, while the rest will go towards bonds denominated in the euro and other currencies like sterling and the Australian dollar.

Meiji Yasuda manages $217 billion on behalf of its policyholders, of which 5 percent was invested in unhedged foreign bonds at the end of September.

Japan's top nine insurers hold a total of roughly $1.4 trillion in assets -- nearly the size of the economy of Italy ($1.7 trillion) -- and their investment plans are closely watched in the market.
The company said the yen was likely to stay broadly pressured near term, but forecasted the Japanese currency was likely to start rising against the dollar and the euro by the end of this fiscal year in March.

It expects the dollar to trade between 112-119 yen and the euro to trade between 152-168 yen in the second half.

BETTER RETURN THAN YEN BONDS

Meiji Yasuda said it had bought foreign bonds actively in June when the dollar was trading near its 4-1/2-year highs against the yen above 120 yen.

A weak yen has made foreign bonds an expensive buy, but Japanese life insurers have been big buyers of them for the past several years as they seek to improve returns while domestic interest rates remains so low.

"Although the yen's surge in August caused us currency losses, returns on foreign bonds were high enough to offset them. Their returns were better than that of investing in yen bonds," said Takamatsu.

The dollar tumbled against the yen in August to hit as low as 111.60 yen, after worries over a credit squeeze triggered by problems in subprime mortgage loans heightened and caused sharp sell-offs in global stock markets.

The company said that of the 80 billion yen the insurer had invested in the first half, 30 percent went to U.S. bonds and another 30 percent accounted for euro denominated bonds.

Given that it does not have any direct investments in loans related to subprime mortgages, Meiji Yasuda said it did not expect to be impacted by continuing subprime problems