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Japan Pension Fund Sends ‘Potent Message’ on JGBs, Sumitomo Says

Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd., which has 33 trillion yen ($359 billion) in assets, talks about Japan’s Government Pension Investment Plan’s potential re-weighting of bond holdings.

“If their asset holdings go down and if they decrease bond holdings, it’s going to be difficult for the bond market as many players are looking for an exit even now.

‘‘If they decrease holdings in other assets, the impact will be big, but the biggest impact will be on bonds. For example if they decide to lower bonds by 5 percent in the next five years, that’s going to be a reason for selling in the JGB market for other investors.

‘‘They’re like a big whale. Even if they only change direction a little bit, the market impact is huge. If they suggest that they might lower JGB holdings, then that’s quite a potent message.

‘‘The question is what they will increase instead. They haven’t changed their core portfolio up until now, so the reasons for their change will be something to keep a watch on.

‘‘With Japan’s aging demographic, there is increasingly more of the population receiving pension payments than paying into the pension system, so pension money is just going to be flowing out.’’

On the GPIF potentially selling bonds on Abe’s policies:

‘‘If they are going to change their core portfolio based on that, it’s very dangerous. It reeks of politics -- selling on politics. Their investments should be more on structural changes in the market.

‘‘They have to think about whether Abe’s policies will be around in five years. So thinking ahead like that, if they say they may sell bonds because of Abe, that would be abnormal and dangerous.

‘‘The core portfolio should be decided independent of politics. Changing it because of politics would be a dangerous route to go down.’’

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