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Japan's vast public pension fund says to double stock investment
[TOKYO] Japan's public pension fund - the world's biggest - said on Friday it will double the amount of equities in its investment portfolio, as it seeks higher returns to cope with a rapidly ageing population.
The unprecedented shift by the US$1.26 trillion Government Pension Investment Fund (GPIF) will see stocks account for a combined 50 per cent of its portfolio, up from about 24 per cent now, pumping billions of dollars into domestic and overseas share markets.
"The new portfolio is designed to make the fund operate more effectively as the economy emerges from deflation," the fund's president Takahiro Mitani told a press conference in Tokyo.
"We're trying to generate long-term returns necessary for the fund's operation - but with the least risk - by diversifying its investment mix." The new portfolio will see low-yielding domestic bonds account for 35 per cent of the fund, with another 15 per cent in foreign bonds, while 25 per cent each would be placed in domestic and foreign shares.
The fund previously had over 70 per cent of its funds in Japanese government and foreign bonds, with the remainder mostly in overseas and domestic stocks.
Japan's massive pension fund, equivalent to a quarter of the entire economy, towers over its nearest competitor - Norway's US$700 billion pension plan.
Unlike some other more adventurous vehicles, it keeps the majority of its cash in super-safe and super-low return Japanese government bonds.
But with a growing number of retirees and shrinking workforce straining government finances - and Tokyo struggling to boost the world's number three economy - Japan's pension fund managers are looking for ways to improve their returns.
About half of the country's social security budget goes to pension funding, so bolstering the performance of the fund would take pressure off the public purse.
The changes announced Friday come as Prime Minister Shinzo Abe shuffles into place the next piece of his "Abenomics" growth drive.
The bid to shake up Japan's slumbering economy after two decades of drift began in early 2013 with a huge public spending bonanza and unprecedented monetary easing from the Bank of Japan.
But the economy has slowed down and Mr Abe is facing pressure to put in place some of the structural reforms he - and most economists - say are necessary, as the premier's approval ratings suffer.
Also on Friday, the Bank of Japan made a surprise move to expand its asset-buying programme, which saw the yen plunge and sent Tokyo shares to a seven-year high.
The fund's Mitani said on Friday's investment changes were not driven by any demands from Tokyo, in response to questions about whether Mr Abe's government had pressured managers for a move into stocks.
"There is no room for us to consider interfering voices from outside," he added.
And observers said there were no guarantees that the pension fund shift would spark a long-term market rally.
"After all, share prices are determined by market fundamentals," said Taro Saito, a senior economist at NLI Research Institute.