Japan pension fund warns of unfair Abe pressure

The head of Japan's Government Pension Investment Fund has hit out at pressure to rebalance its bond-heavy portfolio, arguing that his Y124tn ($1.2tn)-in-assets institution should not be used as a tool to push up stock prices.

Since Prime Minister Shinzo Abe took power in December 2012 with a promise to haul Japan out of deflation, he has held out the prospect of more determined stock-buying by the GPIF as one of the main reasons for other investors to increase exposure to the world's second biggest equity market.

Last November an advisory panel handpicked by Mr Abe urged the GPIF to swap bonds for stocks without delay, while a report from the Financial Services Agency a month later endorsed the panel's proposals as one of half a dozen ways to boost Japan's capital markets "immediately."

But in an interview with the Financial Times, GPIF president Takahiro Mitani said such demands were unfair on an institution that has been functionally independent from government since 2006.

The FSA "should be doing what they are supposed to be doing, without asking too much from us," he said, adding that the calls for trillions of yen of bond sales from panel chairman Takatoshi Ito showed he "lacks understanding of the practical issues of this portfolio."

Changes to the GPIF's investment approach should be outlined by the end of 2014, he said, and would be gradual, subject to guidance due in coming months from the ministry of health, labour and welfare, which supervises big public pension funds including the GPIF.

"Our sole objective is not to invest so that the Japanese economy will be better; our job is to invest the people's money in a safe and efficient manner so we can protect and manage their funds."

The remarks by Mr Mitani, president since 2010, reveal discomfort with the pace and scale of reforms the Abe administration is keen to impose on the GPIF, the world's biggest manager of retirement savings. The fund has long had a more conservative approach to asset allocation than similar bodies outside Japan.

In January at Davos Mr Abe said Japan's public fund management would "change a great deal," and that the GPIF would "contribute to investments leading to growth."

Two days later Yasuhisa Shiozaki, a senior member of Mr Abe's Liberal Democratic party, said he wanted to pass a bill to shake up the GPIF's governance, making it completely free of interference from health-ministry bureaucrats.

It was only last June, however, that the GPIF reshuffled its portfolio for the first time since its ties to the health ministry were loosened eight years ago, dropping its target allocation to bonds from 67 per cent to 60 per cent.

Now, the panel is recommending it go as low as 35 per cent, to encourage more bond-heavy funds to channel money to riskier investments and help broad efforts to galvanise the economy after years of stagnation.

Japan's economic growth in the fourth quarter is expected to have accelerated to an annualised 2.9 per cent from 1 per cent in the third quarter, according to Goldman Sachs, reflecting a rush in demand before a planned consumption tax hike in April. A preliminary GDP estimate is due on Monday.

Mr Mitani says he is prepared to diversify further from bonds, on the grounds that yields are likely to rise (and prices fall) if Mr Abe succeeds in sustaining inflation.

But he resists attempts to force those changes - particularly if, as now, they appear to coincide with a sticky patch in the Japanese stock market.

Mr Abe has set great store in higher stock prices. Last year he became the first prime minister to ring the year-end closing bell at the Tokyo Stock Exchange, celebrating the best year for Japanese stocks since 1972.

"Some people want us to move away from JGBs [Japan government bonds] and to move towards stocks," said Mr Mitani. "[But] our purpose is not to support the level of stock prices in Japan. Their expectation for us may be a little too convenient."

Similarly, he said, Mr Ito's call for the GPIF to drop its bond holdings to the lowest allowable level of 52 per cent of assets was unworkable, given projected cash payouts to pensioners this year of about Y5tn. Such payments are normally funded by selling bonds.

"If we'd have sold JGBs in November, we'd be buying them back right now," he said.

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