Japan's Government Pension Investment Fund, Tokyo, isn't ready for Abenomics, according to the head of an expert panel advising on public investments.
The set of policies from Prime Minister Shinzo Abe aims to defeat 15 years of deflation and spur growth by using the “three arrows” of fiscal stimulus, monetary easing and business deregulation. GPIF needs to reduce the risk of losses on its bond holdings should interest rates start to rise as the economy improves, said Takatoshi Ito, dean of the Graduate School of Public Policy at the University of Tokyo.
“The majority of the panel thinks the GPIF is exposed to too much interest-rate risk,” Mr. Ito said in an interview. “If they're really aware of interest-rate risk, why are 60% of the assets in domestic bonds?”
An interim report from the panel on Sept. 26 showed some members wanted the ¥121 trillion ($1.25 trillion) GPIF to add new assets such as real estate trusts, infrastructure and private equity investments and commodities. The group will meet two to four more times before issuing its final report next month, Mr. Ito said.
The Bank of Japan unveiled an unprecedented monetary stimulus program in April, saying it would double monthly bond purchases to more than ¥7 trillion in pursuit of a 2% inflation target in two years. The easing has kept a lid on bond yields as it helped Japan's exporters by sending the yen to a 4½-year low of 103.74 per dollar in May.
The central bank's inflation goal “is plausible” and the government pension fund “should be using this as their main scenario,” according to Mr. Ito.
The pension fund announced in June a cut to its target holding for domestic bonds, to 60% from 67%, while the proportion of foreign and local shares was changed to 12% each, from 9% and 11%, respectively. Allocations will remain at the revised levels until at least March 2015, GPIF President Takahiro Mitani has said.
GPIF posted its smallest gain in three quarters in the period ended in June because of record domestic bond losses. The advisory panel hasn't discussed how much of the portfolio should move from bonds into other assets, Mr. Ito said, adding that those decisions are a “governance issue.”
