TOKYO, Oct 29 (Reuters) - Japan's major life insurers

plan to focus on swapping low-yield domestic bonds for

higher-return issues in the second half of the fiscal year

through March 2026, offering little hope for a rebound in demand

for super-long debt.

Interviews with 10 domestic life insurers, with assets under

management totalling nearly 300 trillion yen ($2 trillion) as of

March, showed that larger insurers intend to centre their yen

bond investments on portfolio rebalancing, with overall holdings

expected to shrink.

Japanese government bond (JGB) yields began to surge in late

May, particularly on the longer end of the curve, as diminishing

demand among life insurers and other traditional buyers led to

poor results at debt auctions.

The JGB market has also been undercut by a gradual reduction in

purchases by the Bank of Japan, as well as concerns over

potential fiscal deterioration.

Life insurers previously were heavy buyers of super-long

JGBs in order to meet regulatory asset requirements related to

the policies they sold. But the insurers have largely met those

asset thresholds, diminishing their appetite to add to the

holdings.

The sharp rise in long-term yields earlier in the year prompted

insurers to take measures to reduce impairment risks and improve

the quality of their portfolios by replacing older, lower-yield

bonds.

Meanwhile, many insurers also plan to trim domestic equity

positions, which have risen to record valuations as the Nikkei

share index topped the 50,000 mark for the first time this week.

For instance, Nippon Life reported unrealized gains of 9.5

trillion yen ($63 billion) on domestic stocks through September.

"Stock prices are quite high, so we are selling or rotating out

of overvalued names," said Akira Tsuzuki, executive officer of

the financial planning division for Nippon Life, adding: "The

realized gains from equities make it easier to absorb losses

from swapping out bonds".

Many insurers expect the 30-year JGB yield, currently around

3.05%, to finish the year at roughly the same level.

"Yields are at levels that cover liability costs, but we are

not in a hurry to buy," a Dai-ichi Life ( DCNSF ) executive said.

Meiji Yasuda Life is also in wait-and-see mode, citing caution

over the fiscal policy of new Prime Minister Sanae Takaichi and

U.S. inflation.

($1 = 150.78 yen)