(December 6, 2013) — A rift has developed between two of Japan’s Government Pension Investment Fund’s (GPIF’s) top chiefs over the giant fund’s domestic debt holdings.
Takatoshi Ito, chairman of the advisory panel serving the pension fund and a renowned economist, called for the GPIF to reduce its holdings of Japanese debt from its current 58% of the overall portfolio to 52%.
Speaking in Japan yesterday, Ito said now was the right time for the ¥124 trillion ($1.22 trillion) fund to sell up as the Bank of Japan is buying domestic debt, Bloomberg has reported.
A report recently published by the advisory panel called for greater investments in overseas assets, private equity, commodities, infrastructure, and real-estate investment trusts.
But the suggestion has been publicly rebuffed by the pension fund’s president and aiCIO Power 100 member Takahiro Mitani.
The central bank, which is buying more than ¥7 trillion of bonds a month, will fail in its goal of spurring 2% inflation and the risk of owning so much domestic debt was overstated by Ito’s panel, Mitani said this week.
Ito’s speech appears to have had an impact on bond yields in Japan: the nation’s 10-year sovereign bonds touched 0.68% after Ito’s remarks, the highest since October 1.
The GPIF would have to sell about ¥7.5 trillion of local bonds to pare its holdings to 52% of its assets, according to calculations by Bloomberg based on the fund’s assets as of September 30.
Ito argued that if the GPIF did not reduce its holdings, it would send out the message to overseas investors that the largest institution doesn’t believe in Prime Minister Shinzo Abe’s economic stimulus plan to push inflation to 2%.
“Foreign investors are getting confused,” he said. “They think ‘isn’t this weird? Isn’t it a government organization?’ One of them must be wrong — either Abenomics is a mistake, or GPIF is going to see losses.”
Outside of Japan, opinion is divided on how the pension fund should progress. “GPIF is being bullied into reducing their bond holdings while all other private funds including insurance firms have been raising their bond portion and lowering stocks,” Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners, told Bloomberg.
“Japan Government Bonds holdings are one area they can have a very large impact, and yields are shooting up right now.”
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