By Makiko Yamazaki and Leika Kihara
TOKYO, July 10 (Reuters) – Japan’s finance minister said on Friday the government aims to steer the country’s vast state pension funds to “substantially” lift investments in domestic assets, sparking gains in the yen and bonds as investors bet billions of dollars could be channelled into Japanese markets.
The comments put the spotlight on the Government Pension Investment Fund (GPIF), the world’s largest pension fund, which managed 293.6 trillion yen ($1.8 trillion) in assets at the end of March. Any shift in its portfolio strategy would reverberate across global financial markets.
“We would like to pursue measures that would encourage pension funds, including GPIF, to make substantially greater investments in Japanese financial assets,” Finance Minister Satsuki Katayama said at a regular press conference.
The prospect of GPIF directing more money into yen-denominated bonds and other domestic assets could be a game changer for Japanese markets. Investors responded swiftly, driving gains in both the yen and JGBs on expectations that a sizeable pool of pension capital may be steered home.
The yen, which has been under selling pressure for months and hit 40-year lows last week, jumped on Katayama’s remarks and was up 0.6% at 161.44 per dollar. Benchmark 10-year JGB yields made their steepest drop in a month, falling 10 basis points to 2.775%. [JP/][FRX/]
The latest news also highlights how urgently Tokyo is searching for ways to anchor markets buffeted by sharp swings in bond yields and the currency. With government spending remaining expansive and the Bank of Japan moving cautiously on rate hikes, officials face growing questions over inflation pressures, currency and bond market stability and Japan’s fiscal outlook.
“I think with the currency situation that we’re seeing, with yen at close to 40-year lows against the dollar, and they are also kind of running out of ideas on how to support the currency,” Fabien Yip, market analyst at IG, said.
Efforts to drive a structural or fundamental change, “which is to create more flows into yen-dominated assets, would be supportive of the currency in the longer term,” he said.
EMBATTLED YEN PRESSURES POLICYMAKERS
The yen’s prolonged weakness has become a growing headache for policymakers, inflating the cost of imported raw materials and worsening the squeeze on households and businesses already grappling with higher energy prices linked to the Iran war.
The GPIF maintains roughly equal allocations to domestic equities, foreign equities, domestic bonds and foreign bonds.