TOKYO (Reuters) -Japanese government bonds (JGBs) are now a natural investment target over the medium and long term for Norinchukin Bank as the return of inflation and higher interest rates have made them more attractive, its new chief executive said.

Since last year, the Japanese investment heavyweight has been selling off tens of billions of dollars worth of foreign bonds after incurring massive losses on its holdings when interest rates in the U.S. and Europe rose higher than expected.

High foreign exchange hedging costs also support JGB acquisitions, Taro Kitabayashi told Reuters in an interview.

He added it was too early to say how President Donald Trump's imposition of tariffs and the resulting impact on the global economy would affect Norinchukin's portfolio.

Norinchukin, Japan's main financial institution for farm, forestry and fishery cooperatives, is one of Japan's largest institutional investors and its strategy is closely watched by market participants.

Foreign government bonds had previously made up around 50% to 60% of its around 45 trillion yen ($315.50 billion) of market assets, Kitabayashi said, as it sought out higher returns abroad over the years of ultra-low interest rates in Japan.

In the nine months ended December 2024, it sold off 12.8 trillion yen of low-yielding assets, mostly U.S. and European government bonds.

In their stead, Norinchukin is considering new investments, including in JGBs, equities, real estate, private equity and infrastructure, but has not set targets, Kitabayashi said.

"We could scarcely invest in Japanese government bonds when interest rates were negative and low, but now interest rates are higher, they naturally count as among our investment targets," Kitabayashi said.

It expects to book a 1.9 trillion yen loss for the 12 months ended on March 31, but has forecast a modest profit of between 30 billion and 70 billion yen in the year to March 2026 on returns from new investments and higher interest rates in Japan.

($1 = 142.6300 yen)

(Reporting by Anton Bridge, Miho Uranaka and Tomo Uetake; Editing by Jamie Freed)