By Stanley White and Mariko Sakaguchi
TOKYO (Reuters) - Japan's Fukoku Mutual Life Insurance Co plans to triple its investment in domestic stocks this fiscal year as global monetary easing has crushed overseas bond yields, reducing the appeal of foreign debt.
Fukoku, which had 6.28 trillion yen ($57.74 billion) in total assets as of March, plans to halve its investments in foreign bonds this fiscal year.
The company bets it can generate better returns on domestic stocks with attractive dividends, Yusuke Onodera, general manager of investment planning at Fukoku, told Reuters.
In August, government bond yields around the world plunged to unprecedented levels, pushing yields on some debt into minus territory. In some cases, entire yield curves went negative, which has made some institutional investors more cautious.
"Given low domestic bond yields and the risks from investing in overseas bonds, it makes sense to buy Japanese stocks that promise to deliver good dividends," Onodera said in an interview on Wednesday.
Bond yields have since risen from their lows touched in August, but expectations are still strong that central banks in Europe, the United States and elsewhere will need to ease monetary policy further.
A bruising trade war between the United States and China is slamming the brakes on global economic growth, and the situation could get worse unless the world's two-largest economies find a way to quickly scale back punitive tariffs.
For the year ending March 2020, Fukoku plans to invest 60 billion yen in Japanese equities. This is an upward revision from the 20 billion yen in purchases it had planned in May, the insurer said.
The insurer will look to buy Japanese equities on dips that have higher dividend yields than returns expected from overseas debt, Fukoku's Onodera said.
Some equity analysts are worried that corporate profits will weaken, but the chance of corporate share buybacks and expectations for stable dividends still make Japanese shares attractive, he said.
In fiscal 2019, Fukoku will buy 20 billion yen in foreign bonds, half the 40 billion yen it had planned in May. Fukoku will reduce purchases of currency-hedged overseas debt to 40 billion yen from its previous plan of 50 billion yen in purchases.
The insurer now plans to sell 40 billion yen in unhedged overseas debt this fiscal year, more than its previous plan for a 30 billion yen reduction.
The U.S. Federal Reserve has cut interest rates twice this year in response to sluggish inflation and worries about the U.S.-China trade war. Traders are betting that the Fed will cut rates further, futures show.
In September, the European Central Bank stunned investors by agreeing to cut rates deeper into negative territory and revive purchases of government debt as the continent struggles with the threat of recession.
Fukoku will reduce holdings of yen-denominated debt by 50 billion yen in fiscal 2019, more than its previous plan of a 30 billion yen reduction issued in May.
Years of aggressive monetary easing by the Bank of Japan (BOJ) has depressed yields, making it harder for institutional investors to generate returns on Japanese government bonds.
Expectations are growing that the BOJ will expand its negative interest rate policy due to worries about the economy but take some measures to steepen the yield curve.
Onodera questioned the BOJ's ability to steepen the yield curve, saying the central bank can push down yields at the short end but has not found a way to make longer-term yields gain.