Japan Post likely to pour 6.3 trillion yen into stock market

The drama of a general election plus the accompanying stimulus package and an 18-month delay in implementing the consumption tax rise are pushing GPIF’s asset re-allocation away from centre stage and lining up another government institution — Japan Post Group –  to take its turn in the spotlight. This will probably happen twice.

Japan Post Insurance currently holds 78% of its 90.5 trillion yen portfolio in ‘corporate and government bonds’ with the bulk in JGBs. At 1 billion yen its allocation to Japanese stocks is so small that it accounts in percentage terms for nil. Foreign securities account for 1.4% and are thought to contain few, if any, stocks.

This is vastly more skewed away from risk capital than even GPIF’s before the Fund’s reform when 17.3% of its 67.9tr yen holdings were in Japanese equities and 15.9% in foreign stocks.Japan Post Insurance holdings

The Fund was contin-uously urged to change that position and the absence of any pressure on Japan Post Insurance to do ditto suggests that government is keeping this up a sleeve from which it will be theatrically produced if interest in the stock market starts to sag.

Just how much might be directed out of JGBs and into equities can be deduced from how Japan’s other 42 life companies divide up their portfolios.

The Life Insurance Association of Japan publishes numbers for aggregate holdings of its members using figures supplied by them. Japan Post Insurance is an LIAJ member but can be removed from the totals by deducting the figures published in its annual report.

This exercise shows that industry-wide portfolios net of the postal Japan life insurance co holdingsgiant were invested at 31 March as 46.4% in corporate and government bonds, 23.1% in foreign securities, 6.9% in domestic stocks.

So if Japan Post Insurance follows the pattern of its peers it will be putting at least 6.3tr yen into the local stock market and it may be more.

With the yen sinking faster than government would like the company may be dissuaded from moving over 20% of its holdings abroad and prompted to put money which would have taken that route into local stocks instead.

It looks as though 2015 will be a high profile year for Japan Post Group in other ways too.

Last week saw 15 companies approved for listing on the Tokyo Stocks Exchange and the proposed listing of the Group next year will allow government to beat the drum for local equities whenever interest looks like turning to other arenas and different dramas.

Please note that the numbers in the text and tables of this posting do not include the assets of companies’ foreign or  domestic subsidiaries.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

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Dai-Ichi set to overtake Nippon Life in premium income

When the mighty Nippon Life’s premium income for the first-half of the 2014 year, which closed on 30 September, is made known on 28 November it will prove less than Dai-Ichi Life’s already announced 2.59 trillion yen, according to the Yomiuri Shimbun.

If the prediction proves true Dai-Ichi could supplant Nippon as Japan’s third largest life co on the measure, ranking after Zenkyoren and Japan Post Insurance, and it could be on track to be around 11th in the world, compared with today’s 17th.

Dai-ichi, which translates as Number One, is the only Japanese firm in the sector to be publicly quoted in its own right as its competitors are either parts of large financial conglomerates or mutuals.

In 2010 the company bought Tower Australia Group for US$1.2 billion and in June this year it acquired Protective Life of the US for US$5.7bn. It is not clear if Yomiuri’s forecast is for premium income from Japan alone or includes that from abroad.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

 

 

 

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GPIF looking for transition managers

The Government Pension Investment Fund, the world’s largest institutional investor, which has recently announced a significant change in its asset allocation mix is looking for transition managers to help it achieve its goals.  The details are here.

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Investing pensions: Plus ça change, plus c’est la même chose

The Government Pension Investment Fund has published a 17-page English-language summary of the thinking behind its ‘Adoption of [a] new policy asset mix’ which is well worth reading.

As already reported (see post immediately below) the new portfolio will have 35% in domestic bonds, 25% in Japanese stocks, 25% in foreign equities and in 15% foreign bonds.

These proportions were worked out on the basis of GPIF’s investment horizon which is, in turn, based on the level of contributions by, and the projected life spans of, those who pay into the Fund and expect to receive pensions from it.

The summary notes (on page 6) that: ‘According to the Actuarial Valuation, the reserve asset level is to decrease for 10 years (payout is larger than contribution), GPIF assumed investment horizon 2which is followed by 15 years increase (payout is smaller than contribution). Then, the reserve asset level will decrease again.

‘Hence, the assumed investment horizon was set to be 25 years (10+15 years), beyond which the reserve asset is expected to start declining and investment policy should be more focused on the preservation of liquidity’.

The ‘Actuarial Valuation’ is likely to be that carried out once every five years by the Ministry of Health, Labour & Welfare, the latest iteration of which has been recently completed.

However the summary does not explain why the Fund can expect to enjoy a fifteen-year period in which contributions are larger than payouts in a decade’s time.

The size of the workforce will continue to decline during that period and the contributions which workers pay to the basic pension and employee pension schemes were set in 2004 to reach their maximum levels in 2017. They will then be 29,599 yen per month (in 2004 yen) for the former and 18.3% of salaries for the latter.

It may well be that MoHLW’s actuarial panel expects the level of benefits paid out to decline during this period — 2024-2039 –  due to a presumed rise in the overall death rate as pensioners born in the post-WWII baby boom pass away and off the books.

If so, it should say so — especially since there is already a suspicion that GPIF is being directed more to meet what Japan’s current government sees as the needs of the economy than those of the retirees who own the funds.

It’s 5-3-3-2 all over again

This is redolent of the days before the 1995 reforms when companies’ ‘Employee Pension Funds’ (EPFs) were obliged to keep to the MoHLW’s 5-3-3-2 rule which stipulated that no less than 50% of the portfolio be in yen-denominated fixed-income paper, no more than 30% in Japanese equities, no more than 30% in foreign securities and no more than 20% in real estate.

This was one of several routes through which Japan’s government became the most indebted on earth without having to worry about what fixed income markets thought of it.

At that time, as now, the bulk of basic pension contributions were used immediately to pay for benefits. What was left over was held by Nenpuku which was obliged to hand it on to the Ministry of Finance’s Trust Fund and thus to the Fiscal Investment and Loan Programme which paid for the ‘second budget’.

Reversal of fortunes

EPFs were gradually released from the restrictions of the 5-3-3-2 rule and from 2002 allowed to hand over to GPIF a component of their schemes – known as the daiko – which they had previously managed on government’s behalf.

These developments radically changed the nature of pensions demand for asset management firms’ services.

In 2002 they had stewardship of 38tr yen of Japanese retirement-scheme money of which 39% was for GPIF and 61% for corporate schemes.

By 2014 this had become 75% for GPIF and 25% for companies and the total had swelled to 126tr yen –  thanks in part to fund managers winning business away for trust banks and life insurers’ pooled accounts to be managed under segregated mandates.

The dependence on government and quasi-government GPIF Summary boxbusiness has grown in other ways too and it is now likely to be subjected to the same allocation guidelines as those set for GPIF.

As part of the 1990s’ reforms, a type of corporate pension fund known as a Tax Qualified Plan, about 60,000 of which were somewhat lightly supervised by the Ministry of Finance, were phased out.

SERAMA to go the same way?

Some of these schemes converted to one of the post-EPF types supervised by the MoHLW, others went out of existence and 30% of them opted to transfer their assets to the Small Enterprise Retirement Allowance Mutual Aid Scheme (Serama, the subject of an upcoming ijapicap profile) which now has 4tr yen in assets.

Serama will probably be ordered to follow the same asset allocation guidelines as GPIF whether or not it is actuarially appropriate for it to do so.

The two giant public service mutual aid associations — covering national and local employees — as well as one covering private school staff, which have combined assets of 27tr yen, have already been told they should follow GPIF’s suit.

It makes sense that any Japanese pension fund be free to have 50%, or even 100%, of its assets abroad since the growth opportunities are far higher there than they are at home, where the workforce is set to shrink and the economy must, ultimately, do the same.

Runs counter to good stewardship

But assuring the local stock market that it will always be home to a quarter of the country’s huge of pool of pensions savings is as unhealthy as previously assuring the government bond market that it would always have half.

In an age of equities indexing it seems especially misguided and antithetical to the Abenomics idea of shareholders seeking ‘engagement’ with companies through such devices as stewardship codes so as to make them better managed and more competitive.

The 5-3-3-2 rule lasted from the early 1960s to the mid-1990s and the new model asset allocation looks to an investment horizon of very similar length. By the time it comes to an end it will probably be causing massive distortions.

Leaving management of the funds to market forces and investment professionals would have been a much better bet. But this is Japan and Messrs Kuroda and Abe come from an old school of political economy — government knows best, even when it doesn’t.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

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Government stops talk of firing big GPIF bazooka, and does it

The Government Pension Investment Fund has changed the allocation targets of its 126.6 trillion yen portfolio to 25% Japanese stocks (up from 12%), 25% foreign stocks (12%), 15% foreign bonds (11%) and 35% domestic bonds (60%) with no stated level for short-term.

GPIF announced the changes today immediately after the Bank of Japan said it would now aim for maintaining an expansion in the monetary base of 80tr yen, against 70tr previously, a process achieved largely by buying domestic bonds.

Both moves are aimed at kicking the stock market, inflation and the economy back onto more positive tracks – with the last benefiting from a fall in the value of the yen caused by increased outflows of capital from the Fund into investment markets abroad.

There is as yet no sign of the mooted economic restructuring which will be needed to provide momentum but other one-off moves, from the big three mutual aid associations, Japan Post Insurance and Serama, are waiting in the wings.

The shift at GPIF will put an additional 16.5tr yen into the stock market over the medium-to-long term. As Fund rebalances, it will allow its domestic equities holdings to deviate from their target by 9% (previously 6%) and local bonds by 10% (8%).

MAAs, Japan Post Insurance, Serama – it all adds up

A further 2.6tr will flow into local stocks if the three big mutual aid associations — those for local government officials, national public service personnel and private school employees –- follow GPIF’s lead, as they are expected to do.

Riches of even greater proportions could come from Post Office Insurance, part of the Japan Post Group which is due for an IPO next year, as it currently has none of it 85.804tr yen of assets in equities.

Similarly Serama (the Small Enterprise Retirement Allowance scheme) has 4.3tr yen of holdings – none of it in stocks.

So the government has much firepower to left to unleash after that from GPIF.

Many in the market guess that the Fund will implement the changes over be 2-3 years but there is no official word on the matter and it could be as long as five. This raises the interesting question of the value of the total portfolio to be allocated at that time.

Past the tipping point

GPIF is now in its decumulation phase with the number of retirees it serves rising every year while the number of contributing members falls. This will prevent domestic bond holdings from going much below 35% as it provides the liquidity from which pensions are paid.

GPIF portfolio 2002-2014Until the close of the past decade the value of the Fund’s portfolio was rising steeply as large blocks of capital moved under its control. When that phase ended it hit two years of poor returns and these combined with growing liabilities saw it shrink.

Better investment days then returned but the demographic trend has continued unstoppably.

The pensions behemoth says very little about its liabilities and any shortfalls it encounters are made up from tax receipts and, once inflation returns, via an ‘automatic adjustment mechanism’ (also called an automatic balancing mechanism).

But asset Japan population projection2managers and brokers looking for its business, or to the trends it is likely to set, are eventually likely to see as many stories about GPIF selling stocks to pay for pensions as they do today about it changing its asset allocation to improve returns.

In five years time will 25% of the portfolio be as much as it is today?

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

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Engagement not yet in gear but motor seems to be ticking over

Misaki Capital has formed a strategic tie  with Sumitomo Mitsui Trust Bank and Sumitomo Mitsui Asset Management.

Founded in October 2013 by former staffers at Asuka Corporate Advisory, Misaki Capital said in March that it planned to offer, as early as May, a Misaki Engagement Fund which would seek dialogue with underperforming Japanese public companies. The new arrangement will presumably improve the marketing muscle needed for the launch to go ahead.

Misaki is led by Yasunori Nakagami, a co-founder of Asuka where he also worked on an ‘engagement fund’.

The new vehicle follows the launch in May 2012 of the TMAM-GO Engagement Fund, a joint venture between Tokio Marine Asset Management Co and Governance for Owners KK which is structured as UK limited partnership with TMAM-GO as the general partner. The Swedish national pension fund AP4 was one of its seed investors.

© 2013 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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Mutual funds’ foreign holdings up by 11.51% in first half

The value of Japanese mutual funds’ US dollar -denominated holdings rose 11.51% in the first half of the 2014/15 financial to reach 14,628,549 million yen on 30 September, according to figures submitted to the Investment Trusts Association by its members.

ITA Sept '14 country totalsDuring the same six months the value of the yen fell against the greenback by6.07% to  US$1=109.67 from US$1=103.01. In Japan mutual vehicles are called ‘investment trusts’..

The value of the trusts’ investment in US stocks rose 9.13% to 2,146,034mn yen while their American bond holdings were up 7.69% to 4,954,817yen. These categories together account for 6,921,252mn yen with the bulk of the remainder coming from unspecified ‘investment securities’.

ITA Sept' 14 country per cent

The steepest overall climb was the 44% jump in securities denominated in the Qatari riyal which reached 34th place in the overall ranking by currency.

In equity funds the greatest growth was in Danish Krone investments which rose 41.40% to12,909mn yen placing them 21st.

In bond funds Indian rupee holdings topped the growth ranking jumping 162.01% to 27,474mn yen to reach 17th in place in the overall debt paper ranking. This is well below the fifth ITA Sept '14 equities countryposition the rupee occupies in stocks in which investment rose 32.06%  during the term to reach 222,279mn yen.

Almost immediately after the figures were published the Nikkei reported that Mumbai-basedICICI Bank would begin selling mutual funds in Japan via an arrangement with Eastspring Investments (formerly named Prudential Asset Management (Japan) Inc).

 

ITA Sept '14 foreign equities percent

ITA Sept '14 bonds

 

 

 

 

 

 

 

ITA Seot 2014 bonds percent© 2014  Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

 

 

 

 

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Life insurers reveal little of 2nd half asset allocation intentions

The results of Reuters latest poll of life insurers’ asset allocation intentions for the second half of the 2014/15 year — that is 1 October 2014 to 31 March 2015 — are in and reproduced below. They herald no dramatic moves.

For the composition of life companies’ portfolios at 30 June see  archive 28 August 2014 Life cos’s foreign assets up 12%, long awaited exodus begins. For the result of Reuters poll of April-September asset allocation intentions see archive 29 April 2014 Life cos’ tend to caution not big shifts in asset allocation.

TOKYO, Oct 24 (Reuters) – Japanese life insurers, which have combined assets of more than 180 trillion yen ($1.84 trillion) under management, are planning to shift some of their funds from domestic bonds to foreign bonds, as the Bank of Japan’s massive easing has suppressed domestic bond yields.

Below is a summary of the investment plans of Japan’s biggest life insurance companies for financial half year to March 2015, as obtained by Reuters in interviews and at news conferences this month.

Dai-ichi Life will hold a news conference on its investment plans next week.

FOREIGN BONDS

Nippon Life   to increase hedged bonds, to buy or keep steady unhedged bonds

Meiji Yasuda to increase holdings

Sumitomo       to take flexible stance after increase of Y700 bln in Apr-Sept

Mitsui               to increase holdings of unhedged foreign bonds slightly

Taiyo                 to slightly increase holdings, might reduce hedge ratio

Daido                to consider increasing holdings after buying Y300 billion in first half FY

Fukoku             to take a wait-and-see stance after an increase of Y80 billion in Apr-Sept

Asahi                 to raise holdings after an increase of 180 billion yen in Apr- Sept

 JAPAN BONDS

Nippon Life      to increase holdings but carefully consider amounts amid low yields

Meiji Yasuda    to increase holdings, but could allocate some funds to foreign bonds

Sumitomo         to increase holding, but less than Y200 bln

Mitsui                to increase holdings after having raised them by Y100 billion in Apr-Sept

Taiyo                  to likely maintain holdings after buying Y40 billion in first half FY

Daido                 to maintain holdings after selling Y50 billion in first half FY

Fukoku              to maintain holdings flat

Asahi                  to keep holdings steady, may buy near 10-year yield of 0.8 pct

JAPAN STOCKS

Nippon Life      to keep holdings steady

Dai-ichi             to look for chances to buy on dips

Meiji Yasuda    to cut holdings

Sumitomo         to keep holdings steady

Mitsui                to keep holdings steady

Taiyo                  to consider slightly increasing holdings

Daido                  to maintain holdings depending on market conditions

Fukoku               still has room to buy in 2H after invested in planned Y10 bln in 1H

Asahi                   to maintain holdings steady

 FOREIGN SHARES, ALTERNATIVE INVESTMENTS

Nippon Life   to keep foreign share holdings steady, increase loans

Meiji Yasuda     to increase investment in foreign shares, keep alternatives steady

Sumitomo          to keep holdings steady

Mitsui                 n/a

Taiyo                   n/a

Daido                  to maintain holdings

Fukoku               n/a

Asahi                   to increase holdings by about 10 pct

EXPECTED MARKET RANGES

Dollar/yen     Euro/yen         NIKKEI         JGB 10-yr     US 10-yr

Nippon Life     Y105 – 115   Y133 – 147    15,500 – 19,000   0.5 – 1.1%      n/a

Meiji Yasuda   Y102 – 112   Y130 – 145    13,000 – 17,000   0.4 – 0.9%     1.8 – 3.2%

Sumitomo        Y103 – 115   Y130 – 145    14,200 – 18,000   0.4 – 0.8%     2.0 – 3.0%

Mitsui                Y105 – 115   Y131 – 142    15,000 – 17,500   0.4 – 0.8%      2.0 – 3.0%

Taiyo                 Y102 – 112   Y125 – 145    14,000 – 19,000   0.4 – 0.8%      1.8 – 2.8%

Daido                Y100 – 120   Y120 – 160   14,000 – 18,000   0.4 – 1.0%      2.0 – 3.2%

Fukoku             Y100 – 112    Y125 – 145    13,500 – 16,500   0.4 – 0.75%     1.8 – 3.0%

Asahi                 Y102 – 115    Y128 – 143    13,000 – 18,000   0.4 – 0.8%      2.0 – 3.0%

(Reporting by Tokyo Markets Team)

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Déjà vu all over again for Government Pension Investment Fund

At the end of last week the Topix stock index was close to 12% down on its level three weeks earlier, there was widespread talk of Abénomics not working, and the value of the Japanese currency had been shown still vulnerable to sudden moves by ‘risk off’ investors.

Riding to the rescue came the talkative Prof Takatoshi Ito who last year chaired a panel looking at the asset allocation of the Government Pension Investment Fund, the world’s largest institutional investor, and how it could be rejigged to help Abénomics’ purposes.

On 14 October Prof Ito gave an interview to Bloomberg in which he signalled that GPIF would make allocation changes beyond what the market expected. He did so by the simple device of noting that the Fund would be ‘stupid’ to publicize any such changes in advance.

On Friday 17 October Bloomberg published these views along with Prof Ito’s comment that ‘GPIF should shift holdings as much as possible now … [but] … the fund doesn’t seem to be doing so.’

On Saturday 18th October the Nikkei newspaper ran a report entirely devoid of sources saying (quelle surprise!) that GPIF was working out plans to put 25% of its portfolio into Japanese stocks, not 20% as widely assumed, adding that the decision would be ‘finalized this month’.

In early trading on Monday 20 October the Topix index rose 3% to reach it highest since June 2013 with all 33 industry groups advancing.

Star dust or what? The promise of what GPIF will soon do has been used many times to boost the market but the fundamental question about how exactly Abénomics will generate durable momentum for both the economy and stock prices remains unanswered and, to some extent, unasked.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

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Mitsui Sumitomo Trust Bank still the power to beat in pooled

In the long-ago land before the mid-1990s when Japanese companies invested their pension funds solely via pooled accounts at trust banks or life insurers — like the US before the ERSIA legislation –  foreign institutions regarded the acquisition of a trust banking licence as giving them a toehold in a giant market on which they could build.

Only State Street Trust & Banking has remained in the sector since October last year. Then what was once Chase Trust Bank, before becoming SG, was acquired by the Sumitomo Mitsui Financial Group to become SMBC Trust Bank — which is unrelated to market-leader Sumitomo Mitsui Trust Bank which is part of Sumitomo Mitsui Trust Holdings and in Japanese is named the Mitsui Sumitomo Trust Bank (truly).  Text continues below table.

LIs & TBs pooled pension assets 2012-2014Among life insurance companies, which offer the same services but to smaller companies’ pension plans, only Gibraltar (formerly the US Prudential) and Axa Life remain following the decades-long consolidation in both banking and insurance. The merger mania began after Yasuda Trust & Banking had to be taken over by Fuji Bank (subsequently itself part of Mizuho Financial Group) in 1996 and a year later Nissan Life collapsed onto the arms to two subsequent owners before being absorbed into Gibraltar.

With the big domestic financial mergers now out of the way, a virtual non-poaching agreement in place and  pension funds — though still large — shrinking along with the population, the business of managing pooled pensions looks set to be one in which competitors strive to keep up rather than win market share.

The table, which uses data from the fortnightly newsletter Nenkin Joho, tells the story. The eagle-eyed will note that the total for trust banks is 10,000 billion yen less than the total for the same business given in the account based on Life Insurance Association of Japan figures reported below.

The LIAJ has long noted that the figures which it collects and publishes only as totals but of which it provides a breakdown to Nenkin Joho are at fair value. Nenkin Joho says that all the numbers it publishes including those from the LIAJ are at book value. This leads to the conclusion that Nenkin Joho‘s numbers for life cos are at fair value and those for trust banks at book.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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