By Chikafumi Hodo and Noriyuki Hirata
TOKYO, March 6 Japan's $1.26-trillion public
pension fund need not cling to the safety and paltry yields of
government bonds, advisers to the fund said on Thursday, in
another sign that it will shift more money into stocks and other
With Japan moving out of its long spell of deflation, the
Government Pension Investment Fund, the world's biggest pension
fund, "does not need to adopt, from the outset, a
'domestic-bond-centric' stance," an advisory panel to the health
ministry said in a draft report.
GPIF "should consider its investment purpose and investment
goal from a forward-looking standpoint."
Prime Minister Shinzo Abe's government is pressing GPIF to
buy more stocks and invest relatively less in bonds to generate
higher returns for Japan's fast-greying population.
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 move
toward stocks and away from bonds.
In turn, 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 stocks.
The panel reports to the Health Ministry, which oversees
GPIF and is traditionally more concerned with the safety of the
fund's assets than generating high returns.
Indeed, the actuarial panel remained cautious, suggesting
only slightly higher returns and saying the fund should take the
smallest possible risk to hit those targets.
But the apparent green light to invest relatively less in
Japanese government bonds cheered stock investors, and the
cautious return targets are not expected to stop GPIF from
tilting toward riskier assets later this year.
The Nikkei stock index climbed 1.6 percent on Thursday,
getting a boost from the GPIF news, traders said, although the
glacial process of the fund's asset allocation still has further
"Short-term stock investors use any GPIF-related headlines
to take positions, so to them, its decision to move away from
bond-centred investment is positive," said Norihiro Fujito,
senior investment strategist at Mitsubishi UFJ Morgan Stanley
"But in reality, it takes a very, very long time to change
the GPIF's allocation."
The panel recommends targeting returns 1.7 percentage points
above nominal wage increases, little changed from the current
target of 1.6 points, which was adopted at the previous review
five years ago.
The report's assumptions imply a return target of 4.2
percent, versus 4.1 percent now.
"An increase of 10 basis points in the return target looks
modest, but in general it looks as though the Health Ministry
panel has taken into account the recent economic recovery and
recent developments in the Abe administration's policy," said
Hidenori Suezawa, chief bond strategist at SMBC Nikko
GPIF has leeway in deciding its asset allocations, but the
panel's recommendations form the basis for the fund's decisions.
The fund 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.