JPMorgan Chase strategists, led by Ikue Saito, noted that the Japanese Government Pension Investment Fund (GPIF) held an impromptu committee meeting on August 21, the first such August meeting in seven years. This is highly unusual given that the GPIF had concluded in March that no review of its underlying investment portfolio was necessary. The unexpected meeting suggests the committee might be revisiting its previous position, potentially indicating an adjustment to its asset allocation plan due to the sharp increase in Japanese government bond yields.
Analysts believe that the GPIF may be justified in increasing its domestic debt allocation target from 25% to seek higher returns, as Japanese bond yields have climbed significantly. The retirement fund, one of the world’s largest, has incurred losses on domestic bonds for seven consecutive quarters through the April-June period. Benchmark 10-year government bond yields are nearing a 30-year high of 3%, a level that analysts now consider appealing for investors.
This potential reallocation by the GPIF could further support the yen. Other Japanese institutional funds are also reassessing domestic opportunities, with a survey by J.P. Morgan Asset Management revealing that the net share of corporate Japanese pension funds planning to boost domestic bond holdings is the highest since the poll began in 2008. These funds are reducing their overseas debt holdings due to high currency hedging costs, indicating a broader shift of capital back into Japan.
