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Japan’s GPIF: Fiscal year investment loss of 3.81% softened by JGB gains

Japan's Government Pension Investment Fund reported a 3.81% loss Friday for its latest fiscal year, stung by stock market volatility at home and abroad, and a stronger yen.

Even with that ¥5.3 trillion — or $47 billion — loss, its first in five years, the GPIF remained the world's largest pension fund, with roughly ¥135 trillion ($1.27 trillion) in assets as of its March 31 fiscal year-end.

In his introduction to the GPIF's latest annual report, Norihiro Takahashi, the fund's president since March, conceded the higher-risk, higher-reward asset allocation mix adopted in October 2014 had left the fund open to fierce criticism for the mark-to-market losses of the latest volatile year.

Mr. Takahashi called for patience, contending the GPIF's policy mix — which lifted target allocations for domestic and overseas stocks to 25% each from 12%, and slashed the fund's domestic bond target to 35% from 60% — should lessen the odds of pension shortfalls over the long term.

The October 2014 allocation shift had been predicated on expectations that Prime Minister Shinzo Abe's program of aggressive economic stimulus would pull Japan out of a deflationary spiral, making it unwise to leave more than half of the GPIF's assets parked in Japanese government bonds.

Ironically, for the latest fiscal year, the fund's allocations to Japanese government bonds were the portfolio's only source of positive returns.

Domestic bonds delivered gains of ¥2 trillion, as the Bank of Japan pushed government bond yields into negative territory this year in an effort to cut short the yen's rebound in currency markets.

Despite those efforts, the yen ended the fiscal year trading at 112.40 to the dollar, an appreciation of roughly 6%. The stronger yen cut into the value of the fund's dollar-based holdings when translated into local currency terms.

Domestic and overseas stocks accounted for the bulk of the GPIF portfolio’s fiscal year damage, with losses of ¥3.49 trillion and ¥3.25 trillion, respectively. Overseas bonds accounted for another ¥660 billion of declines.

The GPIF reported allocations, as of March 31, of 37.55% to domestic bonds, 22.09% to overseas stocks, 21.75% to domestic stocks, 13.47% to overseas bonds and 5.14% to cash.

At the close of the prior fiscal year, those allocations had been 39.39% for domestic bonds, 20.89% for overseas stocks, 22% for domestic stocks, 12.63% for overseas bonds and the remainder for cash.