Japanese banks are being urged to accelerate sales of their $161 billion in stock holdings as the world’s biggest pension fund prepares to increase its investment in equities.
The Government Pension Investment Fund’s shift toward riskier assets will create 11 trillion yen ($108 billion) of demand for Japanese stocks, leading to a shortage of supply unless banks hasten sales, said Shuhei Abe, chief executive officer of Sparx Group Co., a Japanese asset manager.
“What GPIF reform means in the short term is a supply-demand issue,” Abe said at a Bloomberg event in Tokyo on Aug. 5. “Financial institutions should reduce cross-shareholdings as much as possible to add supply. Without doing that, reform will be difficult.”
While Japanese banks have been trimming their stakes in allied companies that they traditionally held to cement ties, the pace of reduction has eased in recent years. Yasuhisa Shiozaki, the ruling Liberal Democratic Party’s deputy policy chief, is urging banks to end the so-called cross-shareholdings and be subject to stricter limits on their equity investments to improve governance at Japanese companies.
“Banks tend to be a hub of the cross-shareholding practice,” Shiozaki said in a speech at the same event. “They should cut back on stock holdings. They must be required to disclose information about their shareholdings and explain why they need to hold them.”
Japanese banks held 16.4 trillion yen of stocks at the end of May, little changed from a year earlier, central bank data show. Their holdings peaked at 47.9 trillion yen in October 1997, according to the data going back to 1993.
The country’s three largest lenders -- Mitsubishi UFJ Financial Group Inc. (8306), Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. (8411) -- have as much as 10 trillion yen of cross-shareholdings, according to estimates by Rie Nishihara, a Tokyo-based senior analyst at Mizuho Securities Co.
Prime Minister Shinzo Abe is urging GPIF to alter its asset mix as Japan exits more than a decade of deflation. The 126.6 trillion-yen fund will pare domestic bonds to 40 percent of holdings from a 60 percent target and boost local stocks to 20 percent from 12 percent, according to the median estimate from a Bloomberg survey of analysts in May.
Three retirement managers for Japanese civil servants and private school teachers with 30.4 trillion yen will mimic the GPIF’s asset allocation changes, according to Takatoshi Ito, an adviser to lawmakers on the overhaul. Public pension managers must use the same investment guidelines by October next year, according to information on the health ministry’s website.
The benchmark Topix Index (TPX) of shares has rebounded 8.8 percent from an April 14 low as investors speculated the GPIF would buy more local stocks. The gauge slid 2.1 percent at 1 p.m. in Tokyo.
When the fund begins selling its bonds, the Bank of Japan should be able to mitigate any risks to banks from their government debt holdings, Nobuyuki Hirano, chairman of the Japanese Bankers Association and president of Mitsubishi UFJ, said in June.
“If the BOJ maintains its easing, the market will be able to absorb the impact of the GPIF’s bond sales in its portfolio rebalancing,” Hirano said. The central bank has been buying about 7 trillion yen of sovereign notes each month since last year to spark inflation. It kept the policy unchanged today.
To contact the editors responsible for this story: Chitra Somayaji at firstname.lastname@example.org Russell Ward, Paul Panckhurst