Japan Pensions Sell Record $46 Billion Bonds to Buy Stocks

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Japan’s public pension funds, which include the world’s biggest, accelerated their push to dump local bonds and invest the money abroad to a record pace.

The $1.1 trillion Government Pension Investment Fund and its smaller peers almost doubled net sales of Japanese government bonds to 5.56 trillion yen ($46 billion) in the fourth quarter, the most in Bank of Japan figures dating back to 1998. They bought an unprecedented 2.39 trillion yen of foreign stocks and bonds. Selling of JGBs and buying of overseas securities has continued for six straight quarters.

GPIF posted its largest investment gain in almost two years last quarter after shifting more money into stocks from Japanese bonds, as it came under government pressure to boost returns to cover payouts for the world’s fastest-aging population. The Federation of National Public Service Personnel Mutual Aid Associations, last month said it will boost its investments in foreign stocks and bonds and cut exposure to domestic debt, matching the plan by GPIF.

“It seems like three other civil service funds have yet to move,” Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co., said referring to data from the BOJ and and GPIF. “That means there is still some room left for the shift to take place.”

Japan’s public pension funds raised domestic stock holdings for a fifth quarter, adding a net 1.73 trillion yen, the most since 2009. They held 5.6 percent of a record 1.023 quadrillion yen of outstanding JGBs at the end of December. The biggest holder, the BOJ, owned 25 percent of the total as of then, it said Wednesday in Tokyo.

Stock Focus

GPIF hired four external managers of domestic and overseas stocks as it moves to boost equities to half its assets. It made a 5.2 percent return in the fourth quarter, the most since the period ended March 2013, according to a statement last month. Domestic shares returned 6.2 percent in the quarter, while local debt returned 1.9 percent. Foreign bonds returned 9.4 percent, and overseas stocks gained 10 percent.

The figures were the first to show GPIF’s asset mix since it unveiled plans in October to double its allocation to equities and reduce local debt.

It set allocation targets of 25 percent each for Japanese and overseas equities, up from 12 percent. It boosted foreign bonds to 15 percent from 11 percent, and cut local debt to 35 percent from 60 percent. Alternative investments can make up as much as 5 percent of holdings.

The fund announced last month it had picked Schroder Investment Management Ltd., Daiwa SB Investments Ltd. and Nomura Asset Management Co. to oversee Japanese traditional active investments, and UBS Global Asset Management for foreign active holdings.