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Japan’s GPIF moves to reduce minimum domestic bond holdings

Japan's Government Pension Investment Fund tweaked its asset allocation targets to give the 158.6 trillion ($1.42 trillion) pension fund room to further reduce its domestic bond holdings at a moment when Japanese government bond yields have begun to rebound.

In early August, the fund reported a record low allocation to domestic bonds of 27.1% as of June 30, nearing the 25% floor of its permitted range of 10 percentage points on either side of a 35% target allocation.

GPIF President Norihiro Takahashi said in a statement posted on the GPIF website Wednesday that in the current market environment, mechanically reinvesting funds coming in from maturing Japanese government bonds may not be in the best interests of GPIF beneficiaries.

In Tokyo trading Thursday, the yield on the benchmark 10-year JGB stood at 12.2 basis points, up from about 5 basis points at the end of 2017.

In light of that market environment, for its fiscal year through March 31, 2019, Mr. Takahashi said GPIF will interpret that 25% lower limit for local bonds against the portfolio's combined holdings of local bonds and short-term assets, or cash.

Under those new rules for the current fiscal year, instead of being just 2.1 percentage points above that floor as of June 30, the portfolio's reported 6.7% allocation to short-term assets as of that date would have left GPIF 8.8 percentage points above the point where the fund would be obligated to rebalance.

Mr. Takahashi said if changes in the market environment require GPIF's investment team to review those targets, it will do so.