• Domestic debt falls to lowest level in more than a decade
  • Smaller peers of GPIF shifted to more stocks in October

Japan’s public pension funds boosted holdings of foreign assets to a record in the three months through December, while reducing their investment in local sovereign debt to the least in more than a decade.

The funds bought a net 1.3 trillion yen ($11.5 billion) of overseas securities, bringing their total to 59.5 trillion yen, and also added to investments in domestic equities, Bank of Japan data published Friday show. They offloaded a net 704.4 billion yen in Japanese government bonds, leaving them holding 51.8 trillion yen of such debt, the lowest total since the third quarter of 2004.

The shifts may reflect trading by smaller peers of the $1.2 trillion Government Pension Investment Fund, which decided last year to align their investment strategies with GPIF’s from October. The retirement managers’ stock buying also came after a third-quarter rout in equities eroded the value of shares they already held, taking them further from target allocations.

Japan’s Topix index of stocks rebounded 9.7 percent in the three months through December after plunging 13 percent the previous quarter as China’s shock currency devaluation drove stocks around the world lower. A measure of global equities rose 4.6 percent after a 9.9 percent drop the three months before.

New Strategy

Pension funds for civil servants, local government officials and private school teachers, which managed about 30 trillion yen at the time, said a year ago they would adopt targets of 25 percent each for domestic and foreign equities, 35 percent for domestic bonds and 15 percent for overseas debt as of Oct. 1. GPIF doubled its equity allocation the previous year.

The world’s biggest pension fund posted a 3.6 percent return in the three months ended December, its best such gain in a year, after a loss in the previous period. It’s likely to go back into the red this quarter as a selloff resumed in equities, with the Topix down about 12 percent this year. That’s bad timing for Prime Minister Shinzo Abe, who supported the public retirement manager’s move to boost shares, as he prepares for elections this summer.

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