GPIF Cutting Bond Holdings Seen as Possible BOJ Easing Trigger

The world’s biggest pension fund’s possible shift to cut holdings of Japanese bonds would increase the chances of additional easing from the central bank, Barclays Plc said.

The $1.2 trillion Government Pension Investment Fund will announce new asset allocations today, said a government official who asked not to be named. The Nikkei newspaper reported the news earlier, saying the fund will slash Japanese debt holdings to 35 percent from 60 percent and invest in higher-yielding assets. The Topix stocks gauge rose as much as 1.6 percent.

“The reported allocation plan would signal the government’s strong determination to bolster the stock market,” Akito Fukunaga, chief rates strategist for Japan research at Barclays in Tokyo, wrote in a note to clients. “Considering the all-out execution of Abenomics, it wouldn’t be surprising if the BOJ decides to add to monetary easing.”

Japanese government bond yields are at or near record lows as the Bank of Japan buys about 7 trillion yen ($64 billion) a month in domestic debt under plans to end deflation. The board meets today, with three of 32 economists surveyed by Bloomberg News this month predicting an expansion of easing. A further 19 forecast action at a later date, while 10 foresaw no increase. Barclays’s “base-case scenario” is for no additional easing today, Fukunaga wrote.

The yen weakened 0.2 percent to 109.39 per dollar at 12:31 p.m in Tokyo. It reached 109.47 yesterday, within 0.6 percent of the six-year low of 110.09 from Oct. 1.

Japan’s benchmark 10-year bond yield was little changed at 0.465 percent, compared with the record-low 0.315 percent touched in April 2013. Two-year notes yielded 0.02 percent after dropping to an unprecedented 0.005 percent on Oct. 17.

Longer Bonds

Analysts at Citigroup Inc. and SMBC Nikko Securities Ltd. also separately predicted the portfolio shift may spur the BOJ to buy more longer-term debt. Citigroup’s Tokyo-based chief Japanese government bond strategist Eiji Dohke suggested in a note that the central bank could buy bonds directly from the GPIF rather than through the market.

The pension fund will increase allocation targets for local and foreign stocks to 25 percent each, and overseas bonds to 15 percent, and implement the changes over the medium to long term, according to the Nikkei. Its current portfolio targets are 12 percent each for local and overseas stocks, 11 percent for foreign bonds, and 5 percent for short-term assets.

Analysts surveyed by Bloomberg this month projected levels of 40 percent for Japanese bonds, 24 percent for the nation’s stocks, 15 percent for offshore equities and 13.5 percent for foreign debt.

The contents of the Nikkei report were news to him, Health Minister Yasuhusa Shiozaki, whose ministry is in charge of the fund, told reporters today. Investors have been awaiting GPIF’s revised strategy since a government panel that reviewed public pensions said last year the fund was too reliant on domestic bonds.

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