CORRECTED-UPDATE 1-Japanese PM tells health minister to speed up GPIF review

Fri Jun 6, 2014 12:27am EDT

(Adds missing "trillion" to size of GPIF fund in opening paragraph)

* GPIF originally scheduled to complete review by March 2015

* GPIF's portfolio larger than Mexico's economy -- 14th largest

By Takaya Yamaguchi and Chikafumi Hodo

TOKYO, June 6 (Reuters) - Japanese Health Minister Norihisa Tamura said on Friday that he was instructed by Prime Minister Shinzo Abe to accelerate an asset allocation review of Japan's $1.26 trillion Government Pension Investment Fund.

Global financial markets are keenly watching the GPIF's strategy review, because the fund - bigger than Mexico's economy - is a huge investor and a bellwether for other Japanese institutional investors.

GPIF President Takahiro Mitani had signalled last year that the public fund could complete the process by December.

With Japan moving out of deflation, Prime Minister Abe's government is pressing GPIF to change its domestic-bond centric portfolio and diversify into assets such as Japanese stocks to generate higher returns for Japan's fast-greying population.

Tamura said he could not say when GPIF could complete its review of asset allocation. Originally, GPIF was scheduled to complete the review by March 2015.

"I believe a review in GPIF's allocation must take place as soon as possible," Tamura told a news conference after a regular cabinet meeting. The GPIF is administered by Tamura's Ministry of Health, Labour and Welfare.

Earlier this week, the ministry completed an evaluation of the public pension system that paved the way for the GPIF to begin the review of its asset allocations, a process set to shift more money into stocks and out of domestic bonds.

The evaluation will form the basis for GPIF to raise its targeted returns to 1.7 percentage points over nominal wage increases, from the 1.6 percent gross amount set five years ago.

GPIF could raise its investment in domestic stocks to 20 percent of its portfolio, the Nikkei financial daily reported on Tuesday quoting Yasuhiro Yonezawa, the recently appointed head of GPIF's investment committee, as saying.

"Twenty percent would not necessarily be too high a hurdle" for the GPIF's weighting of Japanese stocks, the Nikkei quoted.

Founded in 2001, GPIF conducted the biggest shake-up of its investment strategy a year ago by revising its allocation targets to raise the core weighting for Japanese stocks while lowering that for domestic bonds.

GPIF currently targets a core weighting of 12 percent in Japanese stocks, 60 percent in domestic bonds, 11 percent in foreign bonds, 12 percent in foreign stocks and 5 percent in short-term assets. (Reporting by Takaya Yamaguchi and Chikafumi Hodo; Editing by Chris Gallagher and Eric Meijer)