* Fukoku boosted yen bonds, cut foreign debt in H1
* Reduced foreign and domestic equities in H1
* Cautious about unhedged foreign bond investment
* Eyes emerging market equities in H2
By Aiko Hayashi and Akiko Ishiwata
TOKYO, Oct 16 (Reuters) - Japan's Fukoku Mutual Life Insurance said on Friday it is cutting its foreign asset holdings for the business year to March due to volatile currencies, but that it is considering emerging market equities as one way to hedge against future inflation risk.
Japan's top nine life insurers held around $1.6 trillion in assets as of March 2009 -- about the size of Brazil's economy -- and investors keep a close watch on their plans because their investments can affect financial markets.
Fukoku, the country's ninth-largest life insurer with 5.4 trillion yen of assets under management, said it plans to slash 60 billion yen ($661.4 million) of its foreign bond holdings and about 50 billion yen of its domestic and foreign equities holdings this year.
The insurer said it is moving the combined amount of about 110 billion yen into yen bonds, with the shift mostly completed.
"We no longer have to be overly sensitive to risks. It's different from last year when we were feeling our way in the dark, so to speak," Takehiko Watabe, Fukoku's general manager at financial and investment planning department, told Reuters in an interview.
"But the financial crisis has made it harder for us to take currency risks as the volatility in that market has been beyond our estimation. We are not in a position to invest in unhedged foreign bonds under the current circumstances."
Of the 5.4 trillion yen under management, Fukoku held 339 billion yen of foreign bonds, with foreign securities altogether comprising 10.6 percent of total assets at the end of March.
Its holdings of yen bonds accounted for 45.7 percent of the total assets, or 2.5 trillion yen.
Fukoku expects the dollar to trade between 85 yen and 98 yen and the euro at 125-145 yen in the second half.
The yen has appreciated about 9 percent against the dollar since the start of the fiscal year in April, hitting an eight-month high near 88 yen per dollar in early October.
The Japanese currency has fallen about 3 percent against the euro over the same period and on Friday it was trading at about 135.40 yen per euro.
In addition to currency risk, Fukoku said it was considering the risk of inflation in coming years.
"One of our tasks for the second half is to start thinking about how to hedge against inflation that could emerge in a few years. Such assets for that purpose will likely include emerging stocks investment," Watabe said. (Editing by Joseph Radford)