Japan's Government Pension Investment Fund, Tokyo, needs to cut local debt holdings now because the government will follow an advisory panel's recommendation that the fund seek higher returns, the panel's head said.
The ¥124 trillion ($1.22 trillion) GPIF should pare domestic debt immediately to 52% of assets, its lower limit, in part by selling to the Bank of Japan, said Takatoshi Ito, chairman of the advisory group. The investments made up 58% of the fund's holdings as of Sept. 30.
“GPIF needs to start reducing bonds as soon as possible,” Mr. Ito said in an interview Friday. “Now is the right time to sell, while the BOJ is buying.”
The comments show a rift between Mr. Ito, an academic picked by Prime Minister Shinzo Abe to help overhaul Japan's state-backed pension funds, and Takahiro Mitani, president of the GPIF. 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 Mr. Ito's panel, Mr. Mitani said this week.
“Mr. Ito clearly has the ear of the prime minister, which perhaps means that over a period of time, his views will prevail,” said Jonathan Allum, a strategist for SMBC Nikko Capital Markets, in a telephone interview from London. “But Mr. Mitani is the man that actually runs GPIF, and it doesn't look like he is very keen to change things any time soon.”
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 Sept. 30.
GPIF needs to hold investments that can provide higher returns as retirement payouts rise for the world's oldest population, according to the report from Mr. Ito's panel published Nov. 20. The fund should consider investing more in overseas assets, private equity, commodities, infrastructure and real estate investment trusts, the panel said.