Japanese Pensions Selling JGBs on Abe’s Stimulus, JPMorgan Says

Japanese pensions are selling domestic bonds as Prime Minister Shinzo Abe’s efforts to spur inflation stoke concern rising interest rates will erode the value of their holdings, a JPMorgan Chase & Co. (JPM) survey showed.

Retirement funds held 29 percent of their assets in Japanese bonds at the end of March, down from about 31 percent the previous year, a survey by JPMorgan’s Tokyo-based asset management unit showed. Alternative asset holdings including hedge funds increased 2.3 percentage points to 11.8 percent, according to the survey, which was based on 128 pension plans overseeing a total 11.7 trillion yen ($117 billion).

Japanese pension funds, which have traditionally invested mainly in bonds, are seeking other assets to maintain steady returns and fund retiree benefits in the world’s most rapidly aging society. The country’s public pension fund and insurers including Nippon Life Insurance Co. plan to cut their JGB holdings after Abe’s called for unlimited money printing.

“Abenomics is changing their attitude toward risk,” said Hidenori Suzuki, the head of the strategic advisory group at JPMorgan Asset Management (Japan) Ltd. in Tokyo. “It’s become clear that pension funds are reducing domestic bond holdings and adding assets with higher returns such as foreign bonds and alternative investments, as they become more concerned about interest rate increases from monetary easing measures.”

Currency Hedges

Expectations for action by Abe’s administration and the BOJ have led the Topix index of shares to rally 61 percent and the yen to slump 24 percent against the dollar in the past five months. The yield on Japan’s 10-year government bonds will rise to 0.92 percent by September 2014 from 0.595 percent as inflation picks up, according to a Bloomberg survey of analysts.

Pension funds are also planning to raise infrastructure investments, while increasing foreign exchange hedging, the survey showed.

The Government Pension Investment Fund, one of the biggest buyers of JGBs, said in February that it may reduce its holdings of the bonds and buy more emerging market stocks and alternative assets on concern Abe’s policies will reduce its returns.

Nippon Life Insurance, Japan’s biggest life insurer, said earlier this week it may buy more foreign debt and cut holdings of long-term domestic securities if yields in Japan stay low.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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