Abe Seen Facing $54 Billion Pension Fund Loss After Election

  • Annual loss seen by SMBC Nikko as worst since financial crisis
  • Government detailed plans Tuesday to speed up budget spending

Japan’s government will escape a piece of bad news until after a summer election.

The $1.3 trillion Government Pension Investment Fund will on July 29 announce what may be its worst annual loss since the global financial crisis -- about three weeks later than usual and after an upper house poll that must be held before July 25. SMBC Nikko Securities Inc. estimates the decline for the fiscal year ended March at as much as 6 trillion yen ($54 billion).

The world’s largest pension fund has been swept up in Prime Minister Shinzo Abe’s package of deflation-fighting policies known as Abenomics, with the premier backing a review of GPIF’s investment strategy that led to it putting half of its assets in equities. Abe has been criticized in parliament by opposition party lawmakers who say the public’s pension money is at risk of vanishing as stocks tumble.

The management of GPIF is a concern for older voters, who make up the core of the electorate and are more likely than younger people to head to ballot boxes. And the delay in the results timing fits with other parts of Abe’s election strategy, according to independent political commentator Harumi Arima.

"They’re doing everything positive before the election and keeping the bad things for afterward," Arima said, citing policies such as cash handouts for elderly people on low incomes and efforts to resolve a shortage of preschool childcare.

The election “has absolutely nothing to do with it,” GPIF spokesman Shinichirou Mori said by phone from Tokyo on Tuesday. The fund is reviewing the past 10 years of results, so needs longer to compile the report, he said.

Bonds, Stocks

In 2014, GPIF announced a shift from bonds into stocks as it sought higher returns for Japan’s rapidly-aging population and assets that would do better in an inflationary environment. That initially worked well, with the fund posting a 12 percent return in the year through March 2015.

Since then, asset managers have struggled amid a global downturn in equities. Japan’s Topix index is down 24 percent from an August peak. GPIF lost 511 billion yen in the nine months through December, its quarterly results show. SMBC Nikko estimates the fund slumped by 5 trillion yen in the three months through March, as the Topix fell 13 percent and the yen strengthened.

"Having the announcement so late can only be out of a desire to reveal the losses after even a delayed House of Councillors election," said Michael Cucek, an adjunct fellow at Temple University’s Japan campus. The extent of the damage it will cause to the administration is unclear, he said.

A previous scandal over missing pension contributions was one of the factors that forced Abe to step down in 2007, after only a year in office.

In media polls, most voters say they haven’t haven’t benefited from Abenomics. Even so, Abe’s support levels are buoyant as opposition parties remain weak, and he’s on course to become the longest-serving premier since the 1970s. Abe and his aides have been quick to try to smooth over any signs of dissatisfaction, and the government on Tuesday set out plans to bring forward budget spending to give the flagging economy a boost.

Election Dates

No date has yet been fixed for the upper house election, but domestic media say it is most likely to be held on July 10. Media reports indicate that Abe may even call a snap election in the more powerful lower house on the same day.

The fund’s announcements of the annual results have come no later than July 10 in every year since at least 2008.

The new head of the fund, Norihiro Takahashi, said Friday it was inevitable that the GPIF’s earnings would be affected in the short term by the economic situation and that sizable returns could be achieved in the long term.

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