Japan's Government Pension Investment Fund reported an investment loss of 3.88%, or $52 billion, for its fiscal first quarter ended June 30, with a rising yen and falling domestic stock prices pushing the Tokyo-based giant's portfolio below ¥130 trillion ($1.27 trillion) for the first time since the close of 2014.
Following a 3.52% investment loss for the quarter ended March 31, the fund's latest returns marked a second consecutive quarter of steep losses, amid growing investor doubts as to whether Japanese policymakers have the tools needed to pull the country's economy out of a prolonged period of deflationary low growth.
GPIF's investment portfolio stood at ¥129.7 trillion as of June 30, down from ¥134.7 trillion at the end of the prior quarter and, for the first time, dipping below the level that prevailed on Oct. 31, 2014, when the fund adopted a higher-risk, higher-reward asset allocation plan.
On the argument that Prime Minister Shinzo Abe's aggressive economic stimulus plans made it imperative to shift assets out of low-yielding Japanese government bonds in favor of equities and overseas bonds, the fund slashed its target allocation for JGBs to 35% from 60%, while more than doubling its targets for domestic and overseas equities each to 25% from 12%. GPIF's target for overseas bonds, meanwhile, rose to 15% from 11%.
At the end of the latest quarter, a reversal of the yen's depreciation in the early years of Abenomics led to valuation losses on the fund's extensive holdings of overseas stocks and bonds, which — together with the weakness of Japan's stock market — left allocations to risk assets down from the prior quarter. The weight of domestic bonds and cash rose.
As of June 30, the GPIF reported allocations of 39.16% to domestic bonds, 21.31% to overseas stocks, 21.06% to domestic stocks, 12.95% to overseas bonds and 5.51% to cash.
The fund's respective allocations as of March 31 were 37.55% for domestic bonds, 22.09% to overseas equities, 21.75% to domestic equities, 13.47% to overseas bonds and 5.14% to cash.
For the quarter, the yen strengthened by more than 10% vs. the euro and by just less than 10% vs. the dollar, driving investment losses on the fund's holdings of overseas bonds and equities of 8.02% and 7.76%, respectively. Meanwhile, a 7.5% drop for Japan's TOPIX benchmark of large-cap, Tokyo-listed companies left the fund with a 7.38% investment loss on its domestic stock holdings.
The GPIF's investments in domestic bonds posted a gain of 1.91%, or ¥938.3 billion — not enough to offset losses of ¥2.4 trillion, ¥2.3 trillion and ¥1.5 trillion for overseas stocks, domestic stocks and overseas bonds, respectively.
A presentation on the GPIF's website reiterated that the fund's long-term approach, in the face of short-term volatility, will deliver the returns needed to meet its pension liabilities.
