Thomas E. Smith
Size of the Government Pension Investment Fund of Japan (GPIF) is now estimated at $ 1.1 trillion. Two years ago, however, its size was $ 1.4 trillion.
The fund was going to capitalize on long-term recovery and growth in corporate profits, which would help to achieve good returns for pensioners.
Shinzo Abe even translated possibility of more aggressive investments in to action, but as we know, it didn’t help much. With the end of 2012, the main stock index of Japan actually doubled to a certain point, increasing portfolio of the fund shares at $ 202 billion.
Now, ‘Abenomics’ is crashing, the Japanese economy is fluctuating from recession to a slight increase. Meanwhile, the stock market is clearly "bearish", losing a quarter of capitalization from the recent highs as a result of the yen’s burst.
The problem is that the demographic situation in Japan is extremely dangerous. The aging nation has great difficulties in stock, not to mention the fact that the Japanese Government Pension Fund is just losing money.
For the year ended March 31, the fund lost 5 trillion yen, while losses were still 4.4 trillion yen in the I quarter. Total loss of Japanese retirees numbered $ 100 billion.
The Bank of Japan held the portfolio rebalancing, and this process is still ongoing. It was assumed that it is necessary to sell government bonds, buying stocks that would go up.
However, it was a failed gamble. This year, the Topix index fell to 19% by the end of June. Ironically, had the pension fund left its assets mainly in bonds, it would have brought much better results. The yield on 10-year government bonds fell in the first half of the year to 0.24%, while the yen rose 16% against the dollar.
This means that the nominal price of government bonds has never been higher, and it is very bad news for those pension fund managers, who sold bonds, bought the shares and lost trillions of yen.
Opposition politicians have called to abolish the current GPIF strategy. The latter involves further process of the debt sale and purchase of shares, as the fund has lost too much money of retirees.
If now the Japanese government began to shift to long-term securities, they would be able to maintain the population’s purchasing power at the expense of pensioners.
Yet, this is not happening, as economic advisers in Tokyo believe that they need other 6-12 months before the pension fund manages to rebalance the portfolio.
According to Morgan Stanley’s estimates, the fund will have to sell the bonds at 9.8 trillion yen and buy the stocks at 4.2 trillion yen.
Unfortunately for Japan, it may be too late to change anything. The whole country is now held hostage by the Bank of Japan, which is trying to prove that ‘Abenomics’ is the only way.
source: bloomberg.com
The fund was going to capitalize on long-term recovery and growth in corporate profits, which would help to achieve good returns for pensioners.
Shinzo Abe even translated possibility of more aggressive investments in to action, but as we know, it didn’t help much. With the end of 2012, the main stock index of Japan actually doubled to a certain point, increasing portfolio of the fund shares at $ 202 billion.
Now, ‘Abenomics’ is crashing, the Japanese economy is fluctuating from recession to a slight increase. Meanwhile, the stock market is clearly "bearish", losing a quarter of capitalization from the recent highs as a result of the yen’s burst.
The problem is that the demographic situation in Japan is extremely dangerous. The aging nation has great difficulties in stock, not to mention the fact that the Japanese Government Pension Fund is just losing money.
For the year ended March 31, the fund lost 5 trillion yen, while losses were still 4.4 trillion yen in the I quarter. Total loss of Japanese retirees numbered $ 100 billion.
The Bank of Japan held the portfolio rebalancing, and this process is still ongoing. It was assumed that it is necessary to sell government bonds, buying stocks that would go up.
However, it was a failed gamble. This year, the Topix index fell to 19% by the end of June. Ironically, had the pension fund left its assets mainly in bonds, it would have brought much better results. The yield on 10-year government bonds fell in the first half of the year to 0.24%, while the yen rose 16% against the dollar.
This means that the nominal price of government bonds has never been higher, and it is very bad news for those pension fund managers, who sold bonds, bought the shares and lost trillions of yen.
Opposition politicians have called to abolish the current GPIF strategy. The latter involves further process of the debt sale and purchase of shares, as the fund has lost too much money of retirees.
If now the Japanese government began to shift to long-term securities, they would be able to maintain the population’s purchasing power at the expense of pensioners.
Yet, this is not happening, as economic advisers in Tokyo believe that they need other 6-12 months before the pension fund manages to rebalance the portfolio.
According to Morgan Stanley’s estimates, the fund will have to sell the bonds at 9.8 trillion yen and buy the stocks at 4.2 trillion yen.
Unfortunately for Japan, it may be too late to change anything. The whole country is now held hostage by the Bank of Japan, which is trying to prove that ‘Abenomics’ is the only way.
source: bloomberg.com
