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Japan's GPIF: FY investment loss of 3.81% softened by JGB gains

Japan's 134.75 trillion yen ($1.3 trillion) 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 yen - or $51 billion - loss, its first in five years, the GPIF remained the world's biggest pension fund, with roughly 135 trillion yen 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 that the higher-risk, higher-reward asset allocation mix adopted in Oct. 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 that the GPIF's policy mix – which lifted target allocations for domestic and overseas stocks alike to 25% 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 Oct. 2014 asset 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.

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, 22.00% for domestic stocks, 12.63% for overseas bonds, and 5.08% for cash.

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

Domestic bonds, however, delivered gains of 2 trillion yen, as the Bank of Japan pushed Japanese 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.