Japan's GPIF now able to hedge against risk in various currencies: president

TOKYO (Reuters) - Japan’s Government Pension Investment Fund (GPIF) is now able to hedge against fluctuation in the value of various currencies, the head of the world’s largest pension fund said on Friday, declining to say whether it had started or will start doing so.

Norihiro Takahashi, President of Japan's Government Pension Investment Fund (GPIF) speaks during an interview with Reuters as part of Reuters Global Investment Outlook Summit in Tokyo, Japan, November 16, 2018. REUTERS/Toru Hanai

GPIF President Norihiro Takahashi, who heads the $1.5 trillion (170 trillion yen) fund, spoke to Reuters in Tokyo as part of the Reuters Global Investment 2019 Outlook Summit.

The fund is known as “the whale” due to the potentially huge market impact of its investments. Just a 1 percentage-point shift in its portfolio allocation entails a transfer of about $15 billion.

If it were to hedge against currency risk for even a small portion of its 68.8 trillion yen holdings of foreign assets, the value of the yen would shoot up, making Japanese goods more expensive and reducing the value of income repatriated from abroad.

Such a scenario would almost certainly irk Japanese policymakers who want to curtail any yen strength to support the country’s export-dependent economy.

GPIF generally does not disclose its currency strategy, but market players widely believe GPIF, unlike most other Japanese institutional investors, hardly ever hedges against currency risk due to such political considerations.

Takahashi said the fund now has proper human resources, such as risk management expertise, to conduct currency hedging.

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Takahashi, a former Norinchukin Bank [NORB.UL] executive who became GPIF president in April 2016, also said the fund’s market impact may have been overstated.

“When media and market players describe GPIF as a big whale, I can’t help feeling odd about it, because we always try not to make a major impact on the markets in the short term,” said Takahashi.

“For instance, when we want to buy 100 billion yen worth of assets, either stocks or bonds, we don’t do it in one day. We buy 20 billion yen each day for five days instead.”

Takahashi also said the fund started in September an internal study ahead of its next portfolio review, which needs to be completed before the start of new a five-year period in April 2020.

In its previous review, it overhauled a portfolio heavily weighted toward Japanese government bonds in favor of raising its domestic and foreign stock holdings, in part due to pressure from Prime Minister Shinzo Abe.

The change was announced in late October 2014 on the same day the Bank of Japan launched massive monetary easing measures.

Takahashi said the next announcement may not be made until early 2020.

He also said he regarded global equity sell-offs and volatility spikes in February and October this year as within normal market fluctuation.

“The volatility was abnormally low across markets last year. I think those days are now over,” Takahashi said, adding his fund will play accordingly.

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Reporting by Tomo Uetake; Additional reporting by Takaya Yamaguchi and Takashi Umekawa; Editing by Christopher Cushing