Health Ministry to Shun GPIF Overhaul, Credit Suisse Says

Japan’s health ministry, which controls the world’s largest pool of pension savings, will avoid radical changes to the fund even after an expert panel urged an overhaul, Credit Suisse Securities Japan Ltd. said.

The 124 trillion yen ($1.2 trillion) Government Pension Investment Fund will probably keep most of its money in domestic bonds, while boosting stock holdings by a few percentage points to pacify critics of its investment approach, according to Shinichi Ichikawa, Tokyo-based chief market strategist at Credit Suisse. An advisory group in November recommended GPIF buy higher-returning assets and be restructured to gain independence from bureaucrats.

“The current system is preoccupied with downside risks,” Ichikawa said in a Jan. 15 interview. “The officials don’t want to do anything that will make the health ministry a whipping boy. They won’t change their focus on running the fund safely.”

GPIF, tasked with funding retirements for the world’s most rapidly-aging population, is facing pressure to reassess its investment portfolio as Prime Minister Shinzo Abe seeks to end 15 years of deflation and maintain the developed world’s steepest stock-market rally. GPIF President Takahiro Mitani said last month that the government’s 2 percent inflation target won’t be reached and the advisory panel had overstated the risks of holding domestic debt.

“The panel’s recommendations are very important,” Kotaro Mori, an official at the health ministry, said yesterday. “We will consider the advice and how to quickly and steadily execute it with GPIF.” The Ministry of Health, Labor and Welfare, led by Health Minister Norihisa Tamura, oversees Japan’s public pension funds including GPIF.

Taking Seriously

Economy Minister Akira Amari last year commissioned the advisory group, led by Takatoshi Ito, to recommend changes to the funds. The health ministry will probably take at least six months to discuss the report, Ichikawa said.

GPIF is taking the panel’s recommendations seriously, GPIF official Shigehito Aoki said at a press conference in Tokyo on Nov. 29, when the fund reported quarterly earnings. The fund owned 71.9 trillion yen of local bonds as of Sept. 30, making up 58 percent of its assets, according to its quarterly report. Japanese stocks accounted for 16 percent, followed by 13 percent in overseas equities, 10 percent in foreign bonds and 2.1 percent in short-term assets.

Reduce Bonds

GPIF should cut its allocation to Japanese government bonds, Ito said in a presentation to the ruling Liberal Democratic Party on Dec. 12. Adjustments can be made within the fund’s current deviation limit, Teruyuki Katori, head of pensions at the health ministry, said at the same event. When questioned whether that means he agrees with Ito’s recommendation to pare holdings, Katori said “yes,” while adding he doesn’t want to give details on reallocation.

GPIF won’t offload domestic debt quickly due to concern that its sales may push yields higher, Credit Suisse’s Ichikawa said. The Bank of Japan is buying more than 7 trillion yen of bonds a month to keep borrowing costs low and push cash into Japan’s financial system.

“Japan needs to be concerned about the stability in its debt market,” Ichikawa said. “If GPIF starts selling a lot of JGBs, the BOJ will be left behind as the sole major buyer. So, I think this is unlikely.”

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