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Japan GPIF panel considers more bullish pension assumptions
March 5, 2014 / 7:11 AM / in 4 years

Japan GPIF panel considers more bullish pension assumptions

TOKYO, March 5 (Reuters) - Advisers to Japan’s $1.26-trillion public pension fund are considering more bullish long-term economic assumptions as the government presses for higher returns for its fast-greying population.

A 10-person advisory panel, which holds its final review meeting on Thursday, is expected to outline several scenarios as the basis for targeting investment returns by Japan’s Government Pension Investment Fund (GPIF), the world’s biggest public pension fund.

The government of Prime Minister Shinzo Abe has been pushing the GPIF to rely less on low-yielding Japanese government bonds and more on stocks and other risk assets as part of an overhaul of public funds to help with Japan’s economic revival.

The final form of the recommendations remains to be seen, and it is unclear how the panel’s recommendations might translate into return targets.

Indeed, the panel’s baseline assumption on economic productivity - a key component in the calculations - may not change to avoid a perception it has been railroaded by the government into making rosy assumptions, sources familiar with the matter said.

The most bullish scenario pencils in “total factor productivity” (TFP) in Japan’s economy of 1.8 percent per year a decade in the future and stretching to 2053. The most bearish TFP scenario is 0.5 percent, a document of the panel’s Feb. 13 meeting shows.

TFP is a measure of the dynamism of Japan’s economy, seen as a crucial indicator given the shrinking population.

Five years ago, the panel’s most bullish case was 1.3 percent TFP growth. TFP growth of 1.0 percent was seen as the most likely scenario at that time and 0.7 percent was the worst-case scenario.

GPIF’s investment goals are indexed against wage growth. So even if the panel does not present a more bullish outlook than it did five years ago, GPIF could still end up with higher return targets because Abe’s government is pushing for stronger wage growth than in the past.

A 21-member panel appointed by the health ministry, GPIF’s regulator, will review Thursday’s report. That will then form the basis for GPIF to craft its new portfolio allocation strategy.

In 2009, when the last review of investment returns took place, the target was raised to 4.1 percent from 3.2 percent.

GPIF has averaged 2 percent annual returns since its launch in 2001. 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. (Reporting by Chikafumi Hodo; Editing by Neil Fullick)

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