GPIF Plucks Japan Rally From Rout Amid Stock-Buying Bets

For evidence of how closely the fortunes of Japan’s stock market are tied to the country’s $1.2 trillion pension fund, look no further than yesterday.

The Topix index soared 4 percent, the most in more than a year, after the Nikkei newspaper reported that the Government Pension Investment Fund will increase its target for Japanese equities to about 25 percent of holdings from 12 percent. In a Bloomberg survey of 10 analysts in May, the highest estimate was 22 percent. Yesterday’s stock rally was the broadest on record, according to the bourse, and halted a three-week rout for the Topix that reached 12 percent.

As investors await the official announcement of GPIF’s asset review, the Nikkei report signals the fund may stake even more of the aging nation’s retirement savings on Prime Minister Shinzo Abe’s success in spurring an economic revival. Some analysts said the GPIF report was timed to put a floor under stock-market declines and falling cabinet approval ratings as two of the women picked by Abe as ministers prepared to leave their posts amid scandals.

“It’s clear they wanted to use this news to boost stock prices,” said Kazuhiko Ogata, chief economist at Credit Agricole SA in Tokyo. “Two cabinet members having to resign was a blow and maybe they thought they could soften it.”

Government Comments

The Nikkei didn’t say where it got the information. GPIF’s investment strategy should be decided after study by experts, Japanese Chief Cabinet Secretary Yoshihide Suga said yesterday. While he was aware of the Nikkei report, he couldn’t confirm its content, Suga said. Health Minister Yasuhisa Shiozaki, who oversees the pension fund, said today he has no knowledge about the report, and discussions are under way on bringing forward the asset review.

Every stock on the Nikkei 225 Stock Average rose yesterday, as did 1,802 shares traded on the main board of Tokyo’s exchange. That was the most on record, bourse data show. Japan led gains in Asia, with a gauge of stocks across the rest of the region climbing 1.2 percent, following a 1.3 percent rebound for the Standard & Poor’s 500 Index on Oct. 17. The Topix dropped 1.6 percent today.

“Given investor infatuation with the GPIF reweighting its portfolio as a catalyst for equities, the news reports have an impact,” said Gavin Parry, managing director of Parry International in Hong Kong. “Verbal intervention is a classic in the Japanese playbook.”

The Topix plunged 5.3 percent last week, the steepest drop since April, to close at the lowest in almost five months. The timing of the GPIF leak may have been a bid to boost a bid to boost share prices and Prime Minister Shinzo Abe’s approval rating, said Kenji Shiomura, a Tokyo-based senior strategist at Daiwa Securities Group Inc.

Understandable Aim

“Assuming the administration leaked the news on Saturday as Japanese shares headed into a correction, it shows the Abe government still places importance on stock prices, which is positive,” Shiomura said by phone yesterday. “It’s understandable their aim is to support the market and raise approval ratings, and the fact that they are taking action is reassuring the market.”

The Topix’s 51 percent surge in 2013 buoyed the popularity of Abe’s government, which has enjoyed unusually stable voter approval since the premier took office in December 2012. After nearly two years without a single resignation from Abe’s cabinet, two female ministers -- appointed only last month -- stepped down on the same day yesterday. Yuko Obuchi, 40, trade and industry minister, resigned over allegations of improper use of political funds, and Justice Minister Midori Matsushima, 58, quit over claims she breached election laws.

Economic Growth

Policy makers are also grappling with signs the economy is struggling to rebound from a sales-tax increase. When deciding whether the economy is strong enough to weather another bump to the levy planned for next year, the government will consider stock prices as one indicator, Japanese Vice-Finance Minister Ichiro Miyashita told reporters in Tokyo yesterday.

“Increasing the sales tax is necessary for the health of public finances and we expect the Abe administration to raise it as planned,” said Credit Agricole’s Ogata. “The government wants to lift stock prices to improve the sentiment of companies and the public and counteract the impact of the tax.”

October Announcement

GPIF will update its asset allocation targets later this month, the Nikkei said. That contradicted recent comments suggesting a later announcement was more likely.

The fund’s review may be delayed until December as it shifts toward its new targets ahead of announcing them to the public, Takatoshi Ito, who led the panel that produced the government report, said last week. GPIF hasn’t given a concrete deadline, with Yasuhiro Yonezawa, the chairman of GPIF’s investment committee, saying in July that the process will probably be completed in autumn.

“The cynics amongst us may agree” that the GPIF news was a form of verbal intervention, said Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong. “I think it’s just a coincidence, but agree it was wonderful timing.”

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