TOKYO (Reuters) – Japan Post Insurance will invest $3.2 billion more in regional and corporate bonds this financial year than last and plans to pick up domestic stocks to win higher returns, a senior company official said yesterday.

State-owned Japan Post's insurance arm, which holds 98.9 trillion yen ($1.06 trillion) in assets — equivalent to the size of Australia's GDP — is a major force especially in the yen bond market.

Japan Post Insurance, also known as Kampo Insurance, is facing a tougher environment in fixed income investment due to growing concerns over deflation in the world's second-largest economy, undermining Japanese government bond yields low and corporate and municipal bond spreads tight.

A steady safe-haven inflow of funds has kept 20-year JGB yields just above 2 percent for the past half-decade.

"We want to use every opportunity to buy JGBs when yields are climbing," Mitsuya Watanabe, general manager at the insurer's investment planning section, told Reuters in an interview.

The insurer will continue efforts to lengthen its durations for JGBs by investing more in the 20- and 30-year sectors, he said.

Watanabe said he expects the benchmark 10-year JGB to yield 1.2 to 1.6 percent this year. Yesterday, the yield stood at 1.360 percent.

The insurer's investment plans overall will rise by 300 billion yen to 7.1 trillion yen in the financial year that began in April from last year, Watanabe said.