One Year After Kuroda-GPIF Double Whammy, Investors Eye Repeat

  • Japan Post Bank able to supply JGBs needed by BOJ, Resona Says
  • Postal bank has already began rebalancing its portfolio

The Bank of Japan and a state money manager worked hand in hand last October with surprise easing and a portfolio reshuffle that boosted both stock and bond markets. This year, a similar one-two punch isn’t off the cards.

Japan Post Bank Co., which makes its stock-market debut five days after the BOJ policy meeting this Friday, may announce plans to boost holdings of shares as the central bank buys debt to fuel inflation, according to Amundi Asset Management, Resona Bank Ltd. and AMP Ltd. The postal lender is the biggest holder of Japanese government bonds after the BOJ with 49.2 percent of its 206.5 trillion yen ($1.7 trillion) of its assets in local sovereign debt and just 900 million yen in shares.

“The Post Bank wants to escape from its reliance on domestic bonds, and are at a place where they can seriously think about investing in Japanese stocks,” said Akio Yoshino, the chief economist in Tokyo at Amundi, which oversees about $1.05 trillion globally. “If the Post Bank sell bonds, the BOJ can buy them.”

With the BOJ’s 2 percent inflation goal a distant prospect, economists are focused on how and when Governor Haruhiko Kuroda will expand stimulus and who will supply the debt for the central bank to sustain its bond buying. This time last year, the $1.2 trillion Government Pension Investment Fund announced plans to reduce domestic note holdings and double shares on the same day the BOJ boosted easing in what Mizuho Securities Co. described as “Kuroda’s Halloween easing.”

The BOJ will have to expand stimulus to avoid a stronger yen after the European Central Bank last week signaled its intention to boost monetary easing this year, said Koichi Kurose, the chief economist at Resona Bank. Seeking higher returns, Japan Post Bank will supply the bonds the monetary authority needs to buy, he said. The yen has gained about 4 percent since reaching a 13-year low of 125.86 on June 5.

Amundi’s Yoshino said November is more likely as the central bank will probably want to see third-quarter gross domestic product numbers due next month before making a decision.

A Bloomberg News survey this month showed economists are split on whether the BOJ will boost stimulus at its Oct. 30 meeting. While 16 of 36 analysts surveyed by Bloomberg said they expect Kuroda and his board to bolster monetary policy, eight forecast further easing at a later date and 12 see no prospect of any change in the foreseeable future.

‘Halloween Treat’

The BOJ last year raised its annual target for enlarging the monetary base to 80 trillion yen, up from 60 trillion to 70 trillion yen, and said it would triple annual purchases of exchange-traded funds and Japanese real-estate investment trusts. A few hours later the GPIF said it would slash its target for domestic bonds by about a half and double its holdings in local and foreign stocks.

Last year’s dual announcement was no coincidence, Takatoshi Ito, who led a government pension advisory panel last year, said a day after the event. It was a “beautifully timed Halloween treat,” he said.

‘Strong Coordination’

The actions sent the Topix soaring 32 percent between the decision and Aug. 11, while 10-year benchmark bond yields tumbled to a record low of 0.195 percent in January and was 0.305 percent Tuesday in Tokyo.

“There’s a strong coordination between various agencies -- they’re pulling all the levers,” said Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors, which handles about $113 billion. “The government is going to have to employ other strategies when they can. A stronger equity market has a positive impact on sentiment across the board. That makes a lot more sense than just trying to push bond yields down. ”

Naeimi said he expects a similar move from Japan Post Bank and BOJ by the end of the year.

Japan Post declined to comment.

The consumer price index for September isn’t due until Oct. 30. In August, the BOJ’s preferred gauge that strips out fresh food slipped 0.1 percent. Excluding food and energy, prices rose 0.8 percent.

Rebalancing Effort

The postal bank has already begun rebalancing its portfolio and hiring bankers from firms including Goldman Sachs Group Inc. to manage its assets ahead of listing. It said in April it plans to increase investments in assets aside from JGBs by 30 percent to 60 trillion yen in the fiscal year ending March 2018. The bank sold 5.1 trillion yen in JGBs in the three months ended June, after offloading a record amount of the debt last fiscal year.

Japan Post Holdings Co.’s shares were priced at 1,400 yen, the top end of its marketed range, on Monday. It will list on the Tokyo Stock Exchange on Nov. 4, along with Japan Post Bank and Japan Post Insurance Co.

“If the postal bank is going to announce a reshuffle at the same time as the BOJ announces easing, then they would’ve already started moving,” said Amundi’s Yoshino. “It hasn’t been priced into the market yet. It would be very encouraging.”

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