By Tomo Uetake and Hideyuki Sano
TOKYO (Reuters) - Nippon Life Insurance Co [NPNLI.UL] is likely to sell Japanese shares when they rise further, as the rally in risk assets driven by expectations of a "Goldilocks" scenario continuing is nearing an end, its chief investment officer told Reuters on Thursday.
The insurer also expects the dollar may soften further against the yen but it is ready to buy the U.S. currency when it falls below 105 yen, Hiroshi Ozeki added.
Global shares were rocked by a sell-off earlier this month, after strong U.S. wage data stoked fears that inflation may accelerate, shaking the prevailing view that U.S. borrowing costs will remain contained.
Although global shares have bounced back in the past week or so, Nippon Life expects risk assets could be pummeled again.
Ozeki said market expectations of a "Goldilocks" scenario, one that is not too hot nor too cold, are based on the assumption of three "moderations" -- moderate economic growth, moderate inflation and a moderate rise in asset prices.
"When any of those three disappear, there will be market corrections," he said.
"Since Abenomics began (in 2012), our stance on Japanese stocks has been to 'buy-on-dips'. But with their valuations at lofty levels, we are no longer increasing our stock portfolio.
"As the end of Goldilocks markets approaches, we have to prepare ourself for tumbles in share prices," he said.
Nippon Life expects the dollar could fall further against the yen but given it is approaching levels in line with its fair value in purchasing power parity terms, it is ready to buy dollars below 105 yen, Ozeki said.
The dollar fell to a 15-month low of 105.545 yen
Ozeki said the company does not expect a major market crash yet but added a real test for markets will come when the combined balance sheet of the world's three biggest central banks -- the Federal Reserve, the European Central Bank and the Bank of Japan -- start to shrink.
Right now, while the Fed started to trim its balance sheet, the ECB and the BOJ are still gobbling up bonds.
"(After the latest market volatilities,) everybody is trying to see if any bubbles are formed anywhere...I would think government bonds are the most expensive and what comes next will be a burst of the government bond bubble, even if not right away," he added.
The firm has total assets of 67.4 trillion yen ($630 billion).