Japan’s US$1.75 trillion state pension fund may step up purchases of domestic stocks and scale back on foreign bonds in a reallocation of assets that would ripple through global markets, a Bloomberg survey showed.

Almost half of the 21 analysts polled said the Government Pension Investment Fund (GPIF) will boost its allocation target for Japanese equities above the current 25% as part of a portfolio revamp from April. They said an increase in foreign bonds is highly unlikely, as it would involve yen sales that may weaken the currency. 

Even a modest increase in purchases of Japanese stocks would bolster sentiment in a market that’s still recovering from its worst rout in decades after the Bank of Japan (BOJ) raised interest rates at the end of July. A gain of just five percentage points in the equity target may translate into net buying of more than ¥10 trillion (US$69 billion or RM299.02 billion).

“The impact of any moves by GPIF will be huge,” said Shingo Ide, the chief equity strategist of NLI Research Institute in Tokyo. “It’s been 10 years since GPIF raised its allocation for Japanese stocks.”

All of the analysts, who were surveyed from Aug 13 to 19, expect GPIF to either maintain or increase domestic stocks, with some saying the government may want the fund to buy more to help ease the burden of pension obligations and keep up with accelerating inflation. 

The fund, which reviews its targets about once every five years, currently allocates assets evenly into four categories consisting of bonds and stocks in Japan and abroad. GPIF is likely to have reclaimed its position as the world’s largest pension fund, thanks to the yen’s rebound after a brief slip earlier this year.

Holdings may be adjusted in the lead up to an official statement, according to 60% of the analysts, as in 2014 when the fund started buying domestic stocks before an announcement was made in October. In 2020, the portfolio was released on March 31, a day before the start of the new five-year period. 

A GPIF spokesperson said allocation targets had not been set yet.

A majority in the poll said domestic debt is likely to remain a portfolio mainstay, now that yields have climbed after the central bank raised rates in March for the first time in 17 years.

Some suspect the government wants GPIF to buy more bonds as the BOJ prepares to taper debt purchases through the first quarter of 2026. Although the GPIF’s sole mandate is to work for pensioners, analysts said it will be hard for the fund to ignore the government. 

At its review in 2020, the fund slashed domestic bonds to 25% from 35% and increased foreign bonds to 25% from 15% as Japanese bond yields plunged on the BOJ’s aggressive monetary easing. 

GPIF sets its portfolio based on the government’s instructions.

  - Bloomberg