By Taiga Uranaka and Taro Fuse
TOKYO (Reuters) - Sumitomo Mitsui Financial Group Inc (SMFG) (T:8316) has no plans to raise its holdings in Japanese government bonds (JGBs), its president said, as yields on sovereign debt have slumped to record lows after two rounds of massive monetary easing.
Instead, SMFG is primarily channelling its funds to Japanese and U.S. stocks, President Koichi Miyata said.
The remarks by the head of Japan's third-largest lender reflects a growing shift among the country's financial institutions to plough more funds into riskier assets and away from JGBs - a shift the Bank of Japan's unprecedented measures are intended to encourage.
"We will leave (the bank's JGB holdings) at levels we have reduced them to. We don't see any big chance ahead," Miyata said in an interview on Dec 18.
SMFG aggressively cut its JGB holdings in the wake of the BOJ's large-scale bond-buying programme, from 27 trillion yen (145 billion pounds) at the end of March 2013 to 12.5 trillion yen at the end of September 2014.
"Our main investment target is stocks. Currently, we are betting on Japan and the United States," he said. "I think Japanese stocks have more rooms for upside," he said.
After soaring over 55 percent in 2013, Tokyo's benchmark Nikkei share average (N225) has rallied a further 8 percent so far this year, underpinned by the BOJ's easing.
Awash with deposit money but beset with weak loan demand, Japanese banks gobbled up JGBs after the global financial crisis in 2008. In the period between September 2008 and March 2012, the amount of JGB holdings by Japanese banks jumped 75 percent to about $1.33 trillion, the BOJ data shows.
For the banks, JGBs were a sure bet. Yield on the benchmark 10-year JGB
In the three years ending March 2013, SMFG's banking unit made about $3.4 billion profits from JGBs and other bonds, accounting for more than 16 percent of the unit's operating profits.
The banks had to change their bet, however, when the BOJ's new governor, Haruhiko Kuroda, unleashed the world's most intense burst of monetary stimulus in April 2013. The central bank surprised markets by announcing an expansion to its easing programme in October.
With yields on JGBs driven to near record lows, banks see little room for further price gains and a greater risk of price falls in the future.
Concerns of a jump in JGB yields grew after the government postponed a scheduled consumption tax hike by 18 months, but Miyata said he does not expect a selloff in JGBs to occur given the BOJ's commitment to continue with its massive asset-buying programme.
(Reporting by Taiga Uranaka; Editing by Shri Navaratnam)