Japan’s government is set to urge the nation’s public pension funds — a pool of more than US$2 trillion — to increase their investment in equities and overseas assets as part of a growth strategy being readied by Japanese Prime Minister Shinzo Abe, according to people with knowledge of the policy shift.
The steps, which could be announced today, represent the first time the Abe administration has looked to mobilize Japan’s massive pool of savings to support a growth agenda that aims to spur more consumer spending and corporate investment by pushing the economy toward 2 percent inflation.
It also suggests a new element of risk to the policies known as Abenomics since it would shift funding from the government to the private sector at the risk of 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 Japanese government bonds in recent years.
The panel review will be included as part of a package of steps intended to boost growth set to be announced today, according to the people with knowledge of the preparations who asked not to be named because an announcement has not been made.
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, the sources said.
As part of its deliberations, the panel will consider steps to allow the public funds to invest in alternative investments, including infrastructure financing both in Japan and abroad, the sources said.
The more aggressive investment strategy would apply to the Government Pension Investment Fund, known as GPIF, and about 100 other semi-governmental funds and public funds, such as Federation of National Public Service Personnel Mutual Aid Associations, known as KKR.
Abe has unleashed fiscal and monetary stimulus to boost growth in the short-term.
However, at the same time, officials have taken steps to reassure investors that Japan will tackle a public debt that is the biggest in the developed world at more than twice the size of the nation’s annual economic output.
A government advisory panel warned last month that there was “no guarantee” that domestic investors would keep financing the nation’s massive public debt, saying such a move could drive interest rates higher and crimp long-term growth prospects.
Reuters reported last week that GPIF has already been considering change to its portfolio strategy that could allow its investment in domestic stocks to grow with a rallying market. The fund manages the national pension and pension insurance for the private sector.
The report sent both the US dollar higher against the yen and Nikkei futures higher as investors reacted to the prospect that the world’s largest public pension fund could increase its exposure to assets other than domestic bonds.
The new government panel will review the investment strategies of public funds more generally, including steps to diversify portfolios and to establish a structure to improve risk management.
The Japanese Ministry of Health currently supervises the investment strategies of public pension funds.