TOKYO, Aug 24 (Reuters) - Japan's households are heeding a pitch to invest in exotic currencies such as the Brazilian real and Turkish lira, choosing the long-term promise of emerging markets over old favourites such as the New Zealand dollar.

The market for uridashi bonds -- foreign currency debt sold directly to wealthy Japanese individuals unimpressed with rock bottom returns at home -- is growing at the fastest pace ever as investors seek higher returns and a diversified portfolio.

The South African rand highlights this shift: a combination of high interest rates, rich national resources and publicity around the upcoming 2010 football World Cup has pushed rand bonds to stardom in Japan.

Aussie and kiwi bonds still dominate with 42 percent and 35 percent market share respectively.

But rand sales have been steadily rising over the past year, in step with climbing yields, which now at around 10 percent are just too good to resist for rich Japanese grandmothers and grandfathers who are regular uridashi buyers.

"To tell you the truth, we didn't expect rand uridashis to keep their popularity for this long," said Hiroshi Kannoo, the manager of foreign fixed-income assets at Rakuten Securities, which sells uridashis through its website.

Old Aussie and kiwi favourites feature coupons of around 6 percent, way above typical Japanese yen bonds offering 1 to 2 percent, but substantially below what the new stars have to offer.

"Many uridashi investors don't give it a second glance if the coupon is below 10 percent," said Tsutomu Soma, senior manager of foreign assets at Okasan Securities.

This persistent quest for better returns has been a key factor keeping the yen near a two-decade low on a real trade-weighted basis.

Many uridashi distributors believe the boom in rand uridashis has some more course to run, given robust demand for very high coupons and surprisingly high risk tolerance among household investors.

"Uridashis in rand and other exotic currencies keep coming due to retail investors' quest for higher yields and novel products," said Tohru Sasaki, chief foreign exchange strategist at JPMorgan Chase Bank in Tokyo.

"That trend is supported by a structural issue here and is expected to stay," Sasaki said.

STRUCTURAL SHIFT

Japan is undergoing a broad shift to increased risk appetite among household investors that is leading to a steady leakage from Japan from about 780 trillion yen ($6.8 trillion) in cash and bank deposits that yield very little at home.

Household investors have been stuck with interest rates near zero for more than a decade, a vestige of Japan's efforts to escape deflation and the bursting stock and property market bubble in the early 1990s.

The Bank of Japan keeps rates at 0.5 percent and given that Japan faces a recession and rates are seen on hold for a year or longer, those investors will likely keep investing abroad.

Uridashis promise them both handsome returns and a measure of safety given their top-notch ratings as most of issuers are supranationals, such as the World Bank, or government-related entities, such as Finland's Municipality Finance.

Among the latest market entrants are Russian rouble bonds.

They offer coupons of about 7 percent, but investors are attracted by Russia's rich resources and its growth potential.

The Inter American Development Bank offered Japan's first rouble uridashi in June, receiving a positive response from investors, said Rakuten, the distributors of the bonds.

"We distributed Turkish lira bonds for the first time in March. The sale went surprisingly well," said Rakuten's Kannoo.

"Rouble bonds are also popular despite their coupons, that are about half the lira bonds," he said. "The country's potential makes up for yields."

Economic potential and stability also supports old favourites -- Aussie and kiwi bonds and analysts expect Japanese investors to keep on buying into Australian and New Zealand debt, despite expectations of rate cuts in both countries.

Supporting the argument, Toyota Finance Australia Ltd, a unit of Japan's Toyota Motor Corp , is selling a NZ$345 million uridashi this month.