Japan's ¥139.8 trillion ($1.3 trillion) Government Pension Investment Fund, Tokyo, will leave unchanged the equity-heavy asset allocation targets it adopted Oct. 31, 2014, after an announcement Wednesday indicated the current mix should deliver the returns the pension fund requires.
The announcement Wednesday on the GPIF website said a periodic review by the fund's investment advisory committee had concluded the policy asset mix is “efficient and likely to achieve the required return,” even as expected returns from domestic bonds were revised lower.
Earlier this year, the Bank of Japan introduced a negative interest-rate policy to provide further support to Japan's struggling economy.
The asset mix introduced 19 months ago more than doubled GPIF's equity allocation to 25% each for domestic and overseas equity from 12% each, while slashing holdings of domestic bonds to 35% from 60%.
The target for overseas bonds, meanwhile, rose to 15% from 11%, while a 5% cash weighting was eliminated.
That shift was based, in large part, on the argument that Prime Minister Shinzo Abe's pledge to do whatever it took to lift Japan's economy out of a prolonged deflationary spiral would leave the GPIF's bond-heavy portfolio unable to meet the fund's obligations.
As of Dec. 31, the pension fund's allocation was 37.8% domestic bonds, 23.4% domestic equities, 22.8% overseas equities, 13.5% overseas bonds and the rest in cash.
GPIF is scheduled to announce its results for the fiscal year ended March 31 on July 29.
The new asset mix has drawn criticism from Japan's opposition lawmakers, due to heightened volatility for the once-sleepy pension fund.
For the fiscal year ended March 31, 2015, that volatility was largely benign, with the GPIF enjoying a 12.3% return on its investments.
With valuations of global risk assets growing toppy six years into a post-global financial crisis rebound in asset prices, the GPIF suffered performance setbacks as well over the past year.
For the second fiscal quarter ended Sept. 30, 2015, the fund reported an investment loss of 5.6%. For the yet-to-be-reported final quarter of the fiscal year ended March 31, Japan's equity market remains down more than 10%.
The GPIF's announcement Wednesday noted that the pension fund's policy asset mix “should be revised if the current economic situation significantly differs from the one assumed in formulating it.”
On Wednesday, the pension fund lowered its assumptions about real long-term interest rates in its bear case for Japan's economic outlook to 1.5% from 1.9%, while maintaining its bull case estimate of 2.7%.
Even so, with the pension fund's strong gains for the fiscal year ended March 31, 2015, the GPIF lowered its estimate of the probability that the fund's assets would fall below its required actuarial targets over the coming 25 years to a range of 14% to 21% for the bear and bull scenarios, respectively, from 25% to 40% following the adoption of the current asset mix in October 2014.
Those improved odds reflected the fact that the impact of the pension fund's gains for the previous fiscal year outweighed the negative impact of lower expected yields for domestic bonds, a GPIF spokesman said in an e-mail.
