| TOKYO, March 6
TOKYO, March 6 Advisers to Japan's
$1.26-trillion public pension fund on Thursday recommended
targeting only slightly higher returns, a conservative proposal
that could constrain the fund's ability to shift to riskier
Prime Minister Shinzo Abe's government is pressing the
Government Pension Investment Fund (GPIF) to buy more stocks and
invest relatively less in bonds to generate higher returns for
Japan's fast-greying population.
But the advisory panel appeared to differ with Abe, with
assumptions in a draft report that imply a return target of 4.2
percent, little changed from the current target of 4.1 percent,
which was adopted at the previous review five years ago.
The panel reports to the Health Ministry, which regulates
the world's biggest public pension fund.
The panel recommends targeting 1.7 percentage points above
nominal wage increases, versus 1.6 points now.
GPIF has leeway in deciding its asset allocations, but the
panel's recommendations form the basis for the fund's decisions.
Stock market bulls may take heart that the panel said GPIF
need not stick to a "domestic-bond-centric portfolio" when the
country is moving out of deflation, although the panel's report
said the fund should take the smallest possible risk to achieve
Given its size - bigger than the annual economic output of
Mexico - GPIF is coveted by politicians and can have a big
impact on financial markets if it shifts its investment flows.
Some of the "Abenomics" rally in Tokyo stocks over the past year
has been driven by expectations that the fund would shift toward
stocks and away from bonds.
The current actuarial review is crucial because the return
target will be used to set new allocation targets for GPIF,
which now invests 60 percent in Japanese government bonds and 12
percent in Japanese shares.
A separate Abe-appointed panel led by Takatoshi Ito, a Tokyo
University professor, said in November that GPIF and other
public funds should seek higher returns as the working
population ages and payouts to retirees rise, by increasing
investment in equities and infrastructure as an alternative to
The Abe administration has signalled it wants GPIF to
compile an allocation model as soon as June that would cut the
weighting of domestic bonds and direct more into domestic
stocks, a government source said.
GPIF has averaged about 2 percent annual returns since its
launch in 2001. That is well below the target but returns have
maintained their targeted premium over wages, which have
stagnated or fallen during Japan's long period of deflation.
The fund's assets have grown by 19 percent since Abe came to
office in December 2012 with aggressive reflationary policies
that have pushed down the yen and spurred a jump in Tokyo
The panel kept at 1.0 percent its core forecast for "total
factor productivity" (TFP) - a key component in the
calculations. TFP is a measure of the dynamism of Japan's
economy in the long term, seen as a crucial indicator given the
But while keeping the baseline the same, the advisers
included more bullish long-term economic assumptions, reflecting
the Cabinet Office's rosier economic view.
A 21-person Health Ministry panel, including labour union
members, will review Thursday's report and is expected to
complete the review by the end of the month. That will form the
basis for GPIF to craft its new portfolio allocation strategy.