Taiyo Life, Japan's sixth-largest life insurer with assets of 5.9 trillion yen ($77 billion), may cut its euro-denominated holdings by as much as 50 billion yen, or by 25 percent, during the second half of the current financial year to March from the previous half.

Taiyo slashed its euro-denominated assets by 40 billion yen, or 17 percent, to 200 billion in April-September.

"We'll look for an appropriate time to sell euro-denominated assets further from current levels," Takeshi Negama, general manager of the company's investment planning section, told Reuters in an interview.

"We expect the debt situation in Europe to remain unstable. We still need to watch developments there."

Taiyo Life had about 70 billion yen in Italian bonds at the end of March, but has since reduced these to zero, Negama said.

Taiyo Life currently holds French and German government bonds and Europe agency bonds, but it is not exposed to debt from Portugal, Ireland, Greece and Spain.

Still, Taiyo's overall allocation of foreign bonds will remain flat in October-March, Negama said.

Taiyo Life may increase its allocation of Japanese government bonds (JGBs) if their yields rise from current levels, Negama said.

The life insurer is also planning to keep its allocation of domestic equities flat in October-March.

Taiyo Life is a unit of T&D Holdings, one of Japan's two listed life insurers.

Japan's top nine private life insurers manage some 110 trillion yen in total assets and their investment decisions are closely watched due to their impact on markets.