Japan's Government Pension Investment Fund earned 1.9% in the quarter ended June 30, its smallest gain in three quarters on record domestic bond losses, according to a statement on its website Friday.
GPIF, which has 121 trillion yen ($1.24 trillion) in assets, posted a 6.9% gain in the first quarter of 2013.
Market investments in Japanese bonds fell 1.5%, while domestic stocks jumped 9.7%, the pension fund reported. Losses on local bonds were wider than the previous record quarterly decline in 2008, said Tokihiko Shimizu, director general of the research department at GPIF.
“Returns from domestic stocks and overseas bonds and equities compensated for the loss in domestic bonds,” Mr. Shimizu said in a telephone interview Friday. “Diversifying our assets was effective.”
The Tokyo-based pension fund said in June it would reduce its allocation to local bonds, which constituted 60% of assets at the end of that month, as it seeks higher-yielding investments amid Prime Minister Shinzo Abe's bid to stoke inflation. Japanese government securities lost 1.8% last quarter, according to a Bloomberg World Bond index.
The debt has since rallied, with the yield on the 10-year sovereign note sliding 13.5 basis points since June to 0.72% Aug. 30, the lowest rate worldwide. The Topix index has dropped 2.5% in the same period.
GPIF's investment income of 2.21 trillion yen last quarter was the smallest since the three months ended September 2012.
The pension fund's international bond investments gained 4% and overseas stocks returned 6.1%. The pension fund said 16% of its assets were in domestic stocks as of the end of June, while foreign equities accounted for 13%. International bonds made up 10%.