Within 12 hours of each other yesterday Japanese Prime Minister Shinzo Abe addressed the New York Stock Exchange and the chairman of a panel reviewing the portfolio structures of the country’s public pension funds, Takatoshi Ito, held a news conference to announce its interim report.
The first, noted Michael Cucek’s Shisaku blog on Japanese politics, was an “earnest, trivial, bewildering, winding and embarrassing rhetorical chaos. The smart money will applaud (because it is the smart money) but will note in the aide-mémoire only ‘Structural reform/YES, TPP/YES, More women/YES, Substance/NOTHING — jury still out’ ”.
The last two are also true of Ito-san’s comments which have fed into the nemawashi natterings that inevitably precede decisions about change in Japan. This process still seems to be only about half done so is unlikely to come to an end with the panel’s final report in November.
International press coverage of the report sought to give some context to its ponderings by considering a future in which the leviathan that is the Government Pension Investment Fund remakes itself along the lines of its “global peers” — without noting that there aren’t any.
GPIF is not only the world’s largest institutional investor but twice as big as the second-ranked Norwegian Government Pension Fund, contributions to which come not from the public’s pockets but from surpluses generated by the state oil company. Moreover Norway has not had four decades of an ever-strengthening domestic currency making overseas investment problematic.
Asked whether the panel’s suggestions might mean more money going into Japanese stocks, Dow Jones reported that Mr Ito replied:
“It does not say anywhere in here ‘Increase bond investments’. But you can read ‘reform bond-centric portfolios’, as [being that] it is better to lower the percentage of bond holdings… But I don’t think we as a panel will go as far as to say specifically how much of other assets holdings to increase to make up for a decrease in bond holdings.”
For GPIF to cut back the 57,710 billion yen it holds in passively managed Japan Government Bonds is relatively easy since half is managed inhouse (see 8 July posting House team top manager at world’s No 1 institutional investor), giving it direct control over how this is released back into the wild or to the Bank of Japan under its quantative easing program.
The nexus of QE relationships maintained by the BoJ and working out with them understandings as to who will do what in future is now surely critical.
The government has already announced that it will approve a program of public expenditure to offset the impact on national consumption of a rise in the rate of sales tax which is urgently needed to prevent the country going even deeper into debt.
This hole-in-my-bucket exercise will need buyers for the paper issued to finance the program. Once government decides whose arms to twist on this via so-called guidance, the shape of the future GPIF which be much more discernible.
Whether the Fund puts more into foreign markets — where the growth opportunities may be greater given Japan’s shrinking working force which is simultaneously increasing its pension expenses — depends very largely on whether the yen is seen to have finally finished its 40-year upward run.
For the asset allocation at 31 March 2013 of GPIF, the Pension Fund for Local Government Officials (Chikyoren), etc see under the ‘The Giants’ tab at the top of this page
© 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