Japanese politicians railroaded an advisory panel into urging the nation's $1.3 trillion pension fund to increase returns, a strategy aimed at boosting stocks, according to one of the committee members.
The committee gave optimistic economic assumptions more weight when deciding on the return goal for the Government Pension Investment Fund, Tokyo, because of pressure to affirm that Prime Minister Shinzo Abe's policies would work, and didn't fully discuss the consequence of them failing, said Kazuhiko Nishizawa, an economist at Japan Research Institute. GPIF, the world's largest pension fund, has more than half of its assets in domestic bonds and is under pressure to revamp its strategy as Japan's population ages and the central bank seeks to spur inflation.
“It looks like they're using GPIF as a tool to buoy the stock market,” Mr. Nishizawa said in an interview in Tokyo on March 14. “Politically, there was no option of setting a lower return target for GPIF. There was no room to move. Normally the health ministry would've said 'don't worry about outside pressure when reviewing pension finances,' but it seems it's become a completely political matter.”
Japanese bonds accounted for 55% of GPIF's portfolio at the end of December, the smallest share since the pension fund was established in its current form in April 2006. GPIF held 17% of its assets in domestic equities last quarter, 15% in foreign equities and 11% in overseas bonds, according to a statement on its website.
With the five-year financial review scheduled to be completed this year, investors are watching whether the allocation to local debt will be cut further.
“It's extremely important to make sure the pension finance review is neutral and not under pressure from politics,” Mr. Nishizawa said.