World’s Biggest Pension Fund Sells JGBs to Cover Payouts

Photographer: Tomohiro Ohsumi/Bloomberg

An elderly man visits a shrine in the Sugamo district of Tokyo. Japan ages faster than any other developed society, with 23 percent of the population 65 or older, according to government figures. Close

An elderly man visits a shrine in the Sugamo district of Tokyo. Japan ages faster than... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

An elderly man visits a shrine in the Sugamo district of Tokyo. Japan ages faster than any other developed society, with 23 percent of the population 65 or older, according to government figures.

Japan’s public pension fund, the world’s largest, said it has been selling domestic government bonds as the number of people eligible for retirement payments increases.

“Payouts are getting bigger than insurance revenue, so we need to sell Japanese government bonds to raise cash,” said Takahiro Mitani, president of the Government Pension Investment Fund, which oversees 113.6 trillion yen ($1.45 trillion). “To boost returns, we may have to consider investing in new assets beyond conventional ones,” he said in an interview in Tokyo yesterday.

Japan’s population is aging, and baby boomers born in the wake of World War II are beginning to reach 65 and become eligible for pensions. That’s putting GPIF under pressure to sell JGBs to cover the increase in payouts. The fund needs to raise about 8.87 trillion yen this fiscal year, Mitani said in an interview in April. As part of its effort to diversify assets and generate higher returns, GPIF recently started investing in emerging market stocks.

GPIF is historically one of the biggest buyers of Japanese debt and held 71.9 trillion yen, or 63 percent of its assets, in domestic bonds as of March, according to the fund’s financial statement for the 2011 fiscal year. That compares with 13 percent in domestic stocks, 8.7 percent in foreign bonds and 11 percent in overseas equities.

Emerging Stocks

The fund named six institutions including Nomura Asset Management Co. and Mizuho Asset Management Co. to manage its emerging market stocks portfolio, according to a statement on its website earlier this month. The investments will be focused on countries in the MSCI Emerging Markets Index (MXEF), which tracks 21 nations including Brazil, Russia, India, China, South Korea, Taiwan and South Africa.

“We started with a small amount very recently,” Mitani said yesterday, without elaborating.

Mitani also declined to say whether the fund’s performance since April is matching last year’s total return of 2.32 percent. “Our performance is not that good so far this year due to the yen’s strength and losses in domestic and overseas stocks,” he said.

The market environment may remain “favorable” for Japan’s debt over the next couple of years on prospects that the Bank of Japan (8301) will keep easing monetary policy to meet its 1 percent inflation goal, according to Mitani.

GPIF is the biggest pension fund in the world by assets under management, according to the Towers Watson Global 300 survey in September, followed by Norway’s government pension fund.

Bond Yields

The yield on 10-year Japanese government notes climbed one basis point, or 0.01 percentage point, to 0.73 percent as of 10:30 a.m. in Tokyo. The rate closed at 0.72 percent yesterday, matching the lowest level since June 2003, when it fell to a record 0.43 percent. Bonds with a maturity of up to three years all yield about 0.1 percent as the central bank buys these securities through its asset-purchase program.

The prolonged debt crisis in Europe has added to demand for yen-denominated assets, sending the currency to 77.94 per dollar this week, the strongest since June 1. Against the euro the yen reached 94.12, a level unseen since November 2000.

“There isn’t much value in short-term notes as the BOJ’s massive asset purchases have made their yields extremely low,” said Mitani. “I would say the current 0.7 percent level for 10- year yields is a bit too low, because we have to take into account that there are flight-to-quality bids in JGBs because of the European crisis.”

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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