Japan signals pension push into domestic assets, sparking rally in yen, bonds

Japan’s finance minister said on Friday the government aims to steer the country’s vast state pension funds to “substantially” lift investments in domestic assets, sparking gains in the ​yen and bonds as investors bet billions of dollars could be channelled ‌into Japanese markets. The comments put the spotlight on the Government Pension Investment Fund (GPIF), the world’s largest pension fund, which managed 293.6 trillion yen ($1.8 trillion) in assets at the end of March. Any shift in its portfolio strategy would reverberate across global financial markets. “We would like to pursue measures that ‌would encourage ​pension funds, including GPIF, to make substantially greater investments ⁠in Japanese financial assets,” Finance ⁠Minister Satsuki Katayama said at a regular press conference. The prospect of GPIF directing more money into yen-denominated bonds and other domestic assets could be a game changer for Japanese markets. Investors responded swiftly, driving gains in both the yen and ​JGBs on expectations that a sizeable pool of pension capital may be steered home. The yen , which has been under selling pressure for months and hit 40-year ⁠lows last week, jumped on Katayama’s remarks and was ⁠up 0.6% at 161.44 per dollar. Benchmark 10-year JGB yields ​made their steepest drop in a month, falling 10 basis points to 2.775%. EMBATTLED YEN PRESSURES ​POLICYMAKERS The yen’s prolonged weakness has become a growing headache for policymakers, inflating ‌the cost of imported raw materials and worsening the squeeze on households and businesses already grappling with higher energy prices linked to the Iran war. The GPIF maintains roughly equal allocations to domestic equities, foreign equities, domestic bonds and foreign bonds. At its review ⁠in 2020, the GPIF raised its allocation of foreign bonds to 25% from 15% and cut its allocation of domestic bonds to 25% from 35%. A spokesperson at GPIF said the ⁠fund is aware of Katayama’s ‌remarks but refrained from commenting further. Katayama said Japan is transitioning ⁠to a new growth-driven economy under Prime Minister Sanae Takaichi’s ​administration ‌and has entered a period of positive interest rates with ​higher stock markets. “The ⁠government wants to help households directly benefit from gains generated by economic growth,” she added. Katayama’s remarks came as concern over the administration’s expansionary fiscal policy and risk of political interference in monetary policy sparked a selloff on Japanese government bonds (JGB), pushing yields to multi-decade highs.