Japan's record buying of foreign debt hints at pension fund support

[TOKYO] Japanese purchases of overseas debt last week surged to a record high, in what investors say is likely a coordinated effort by government pension funds to stem a massive rally in the yen.

Domestic investors bought 4.2 trillion yen (S$56.7 billion) in foreign bonds on a net basis during the week ended March 7, the highest on record, according to finance ministry data.

The purchases came in the wake of a surge in the yen to a multi-year high against the dollar as investors shunned riskier assets amid the coronavirus outbreak.

The virus, which the World Health Organization declared a pandemic on Wednesday, has infected more than 121,000 people in 118 countries and left over 4,300 people dead, according to a Reuters tally.

Japanese government officials often express their displeasure when the yen strengthens, as a stronger local currency hurts earnings of local exporters.

A finance ministry official declined to comment when asked what was behind the sudden spike in foreign bond purchases, but market watchers said the move bore the hallmark of Japan's Government Pension Investment Fund (GPIF), the world's largest pension fund.

"On one level, buying bonds when the yen strengthens makes a lot of sense for a Japanese investor," said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management.

"But on another level, these purchases are so large it suggests that pension funds were in the market. We also know that for some time now the Japanese government has been pushing GPIF to shift its portfolio to domestic stocks and foreign bonds."

Many currency traders refer to GPIF as the "whale" for its sheer size, and a sudden weakening in the yen is occasionally attributed to selling by GPIF and other Japanese pension funds.

GPIF is expected to rebalance its portfolio this month, and some investors say this could cause swings in stocks, bonds and currencies because of the amount of money it manages.

REUTERS