* BOJ's asset purchase programme blunts JGB impact of
* Timing of GPIF reallocation is key to market impact -
TOKYO Aug 7 Japanese government bonds fell on
Thursday after sources said the Government Pension Investment
Fund (GPIF) plans to shift more of its portfolio from bonds to
riskier assets such as equities.
The sources familiar with the fund's plans said the GPIF
will likely lower its JGB weighting to around 40 percent from a
current 60 percent target.
It will also allocate over 20 percent of its funds to
domestic stocks compared with a current 12 percent target as it
aims to generate higher returns for the country's ageing
The yield on the benchmark 10-year JGB was unchanged from
the previous session before the GPIF news, after which it added
1 basis point to 0.525 percent.
The 30-year yield added 1.5 basis points to
1.695 percent, from 1.680 percent earlier in the session.
Ten-year lead September JGB futures dropped 0.08
point to 145.95, after finishing at midday up 0.06 point at
"JGBs were responding to the Nikkei's rebound, which was
boosted by the Reuters report on GPIF," said Naomi Muguruma,
senior fixed-income strategist at Mitsubishi MUFJ Morgan Stanley
The Nikkei stock average ended up 0.5 percent,
turning positive after it was earlier on track for a sixth
straight losing session.
The yen weakened on the GPIF news, with the U.S. dollar
adding about 0.3 percent to 102.36 yen, after rising as
high as 102.46 yen, pulling away from a 1-1/2 week low near
101.76 yen set on Wednesday.
The GPIF's new allocations are largely in line with most
expectations, Muguruma said, but timing will ultimately
determine the extent of its effect on the JGB market.
"What JGB participants would like to know next is how long
the GPIF will take before adjusting its portfolio to the new
model portfolio, which is unclear at this moment," she said,
adding that domestic investors were still buying JGBs on dips,
limiting the market impact.
The Bank of Japan's massive asset-purchase programme also
blunted the JGB market impact. The central bank began a two-day
meeting on Thursday at which it is expected to maintain its
policy framework, under which it has pledged to increase base
money by 60-70 trillion yen per year through aggressive asset
The BOJ buys the equivalent of 70 percent of new JGB
issuance every month, which has capped yields. The 10-year yield
fell as low as 0.510 percent in early July, its lowest level
since April last year.
After recent downbeat data, some BOJ policymakers might
propose offering a bleaker view on exports and output than given
in the July assessment.
(Reporting by Lisa Twaronite; Editing by Kim Coghill)