Norinchukin Bank (Nochu), Japan’s fourth largest by assets, plans to increase investments in securitised products, including asset-backed securities and collateralised debt obligations, by at least Y6,000bn ($54bn) over the next year or two.

The plan by Nochu, one of Japan’s biggest institutional investors with an investment portfolio of more than $400bn, is a vote of confidence in securitised products, which have suffered sharp declines amid the US subprime mortgage crisis.

Nochu, which provides financial services to Japan’s agricultural, forestry and fisheries co-operatives, is looking to invest in securities backed by cash flows from credit cards and auto loans as well as in CDOs and collateralised loan obligations, mainly in the US, where it believes prices have fallen to attractive levels.

The quality of underlying assets also seems better to the bank. “We are buying [securitised products] because these products have become very clean, like they were 10 years ago,” Masanobu Takatani, a senior managing director of the bank, told the Financial Times.

“We are assessing all kinds of products and our valuations are much higher than the current market valuations. It has finally become a market where such valuations are possible.”

Nochu, which has about Y16,000bn in securitised products, aims to increase the ratio of assets it invests in this category from 37 per cent of its Y44,000bn investment portfolio to 50 per cent.

Mr Takatani said that before the subprime crisis erupted, there were many dubious products, which Nochu also bought.

The bank, which had total assets of Y61,085bn at the end of March, made a Y280bn loss on investments in securitised products last year.

Nochu, which is considered by some as Japan’s largest hedge fund, expects the market to continue to be volatile for “another one to two years”, Mr Takatani said.

However, in an increasingly inflationary environment, Nochu is under pressure to shift its investments out of Japanese government bonds and treasuries and into securitised products to reduce its interest rate risk.

Mr Takatani said the bank would, nonetheless, avoid further investment in real estate securitisations.

In spite of market turbulence in the past year, Nochu continued to invest in securitised credit products and raised the ratio of credit assets in its portfolio from 29 to 37 per cent at the end of March.