Japan's Finance Minister, Satsuki Katayama, stated on September 8 that the Government Pension Investment Fund (GPIF) is still considering whether a review of its asset allocation is necessary. This statement comes amidst growing speculation that the $2 trillion fund might increase its target for domestic bonds. The speculation was fueled by an unusual management committee meeting held on August 21, which was the fund's first publicly announced August meeting in seven years.
The August 21 meeting's agenda included a report from a team responsible for operational matters such as asset allocations, despite that group having concluded in March that an allocation review was not needed. Analysts suggest that the GPIF could be justified in raising its domestic debt allocation target from 25% to seek higher returns, given that Japanese bond yields have climbed sharply. The fund lost money on domestic bonds for seven consecutive quarters through April-June, but the recent surge in debt yields, with benchmark 10-year government bond yields nearing a 30-year high of 3%, might make them more appealing.
Japanese government officials have been vocal about encouraging domestic investment. In July, Finance Minister Katayama and Prime Minister Takaichi Sanae called for increased domestic investment by pension funds. A 1% increase in GPIF's domestic asset allocation could generate approximately $20.3 billion (3 trillion yen) in purchasing capacity from its roughly $2 trillion (300 trillion yen) asset base. Societe Generale estimated that GPIF could purchase up to $76 billion in additional Japanese Government Bonds (JGBs) if portfolio rebalancing proceeds.
