Japan's pension cash for stimulus

Prime minister wants to make use of the funds to help power economic growth

PUBLISHED : Wednesday, 05 June, 2013, 12:00am
UPDATED : Wednesday, 05 June, 2013, 4:33am

Japan's government is set to urge public pension funds - a pool of more than US$2 trillion - to increase their investment in equities and overseas assets, people with knowledge of the policy shift said.

The steps, which could be announced today, are part of a growth strategy being readied by Prime Minister Shinzo Abe.

They are the first time the Abe administration has looked to mobilise the country's massive pool of savings to support a growth agenda that aims to spur more consumer spending and corporate investment by pushing inflation towards 2 per cent.

The move introduces an element of risk to the policies known as Abenomics, since it would shift funding from the government to the private sector, possibly driving interest rates higher.

Specifically, the government will set up a panel next month to consider the investment strategies of public funds, which, like other Japanese institutional investors, have relied heavily on investment in the government's bonds in recent years.

The panel will look to reach a conclusion as soon as this autumn on strategy and will urge implementation of the new investment guidelines by public funds no later than April 2015, according to the people familiar with the plans.

They said the panel would consider steps to allow public funds to invest in alternative investments, including infrastructure financing in Japan and abroad.

The new, more aggressive investment strategy would apply to the Government Pension Investment Fund (GPIF) and about 100 other semi-governmental funds and public funds.

In recent years, public funds led by GPIF have followed a conservative strategy that has meant a large allocation of funds to the Japanese government bond market and made them a near-captive source of financing for government spending.

GPIF, for instance, manages a portfolio that includes a mid-point target of a 67 per cent allocation to domestic bonds, 11 per cent to domestic stocks, 9 per cent to foreign stocks and 8 per cent to foreign bonds.

Abe has unleashed fiscal and monetary stimulus to boost growth in the short term. But officials have taken steps to reassure investors that Japan will tackle its public massive debt.

A government advisory panel warned last month there was "no guarantee" domestic investors would keep financing the debt.