Japanese pension funds favoring overseas investments are helping send the yen down toward its biggest monthly loss this year, Nomura Securities Co. says.
The CHART OF THE DAY shows so-called trust accounts boosted purchases of foreign stocks and bonds to the most since 2009. The accounts capture pension fund flows including the $1.2 trillion Government Pension Investment Fund, Nomura says. The bottom panel shows the yen slumped to a six-year low this month as hedge funds and other large speculators increased bearish bets on the currency to the most since January.
“The shift overseas in pension money is accelerating,” said Yunosuke Ikeda, head of currency strategy at Nomura in Tokyo. “With public pensions working toward rebalancing their domestic bond-heavy portfolios, private pensions are highly likely to take the same approach. Hedge funds are betting the changes are already taking place, which is increasing pressure for yen selling as they race to keep up.”
Bets the yen will weaken versus the dollar rose to a net 117,000 contracts in the week to Sept. 2, according to the Commodity Futures Trading Commission. The currency has tumbled 2.8 percent in September, set for its worst month since November. It slid to 107.39 per dollar on Sept. 12, the weakest since September 2008, and was at 107.11 yesterday in New York.
The government pension fund, the world’s biggest, will slash its target for local bond holdings to 40 percent of assets from 60 percent, while raising targets for overseas bonds and shares to a combined 31 percent from 23 percent, according to a Bloomberg News survey of analysts in May. Prime Minister Shinzo Abe this month appointed Yasuhisa Shiozaki as the minister overseeing the fund. Changes are needed as soon as possible, Shiozaki said last month.
Japanese government debt accounted for 53.4 percent of the fund’s portfolio at the end of June, a record low. Trust accounts put a net 1.036 trillion yen ($9.67 billion) into foreign stocks and bonds in August, Ministry of Finance data show.