Japan’s Top Pension Fund Likely to Brush Off Political Pressure

s885{alfcy(0l2kn323ch5qt_media_dl_1.png Bloomberg

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(Bloomberg) — Japan’s biggest public pension fund will likely ignore Finance Minister Satsuki Katayama’s call to boost domestic investment, at least in the short run, because of strict rules governing asset allocation and its public mandate. 

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Katayama sparked a jump in the yen on Friday when she said the government would pursue policies to encourage pension funds to buy more Japanese assets. The Government Pension Investment Fund, one of the world’s largest, follows a rigid investment framework that is reviewed only once every five years. At its latest review, completed in 2025, the fund maintained its equal 25% allocation across four asset classes: domestic stocks, foreign stocks, domestic bonds and foreign bonds. The next scheduled review is in 2030.

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Even if the GPIF were to consider revising its strategic allocation before then, such a decision would have to go through an established process. The GPIF’s statutory mandate is to maximize long-term returns for pension beneficiaries, meaning any increase in domestic investment would need to be justified on investment grounds rather than policy objectives. That could prove difficult as overseas assets have consistently outperformed their domestic counterparts over the past decade, both in equities and fixed income.

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“Changing the strategic asset allocation faces a very high hurdle,” said Koji Takeuchi, senior research fellow at Itochu Research Institute. “The portfolio is set under a legal framework, with input from outside experts and a focus on prudent and efficient asset management. It would be very difficult to alter it for reasons such as increasing investment in Japan.”

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Still, the government can force changes at the GPIF if it chooses to do so even if it takes some time. Former Prime Minister Shinzo Abe took the lead to change the fund’s allocation in 2014 as a part of his policy to end deflation. His campaign to influence the GPIF took nearly two years after he took office. A representative for GPIF declined to comment.

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In recent years, other governments have taken steps to drive more domestic investments by pension investors. Canada’s finance department removed a rule limiting pension funds’ investments in domestic entities in 2024, while Korea’s National Pension Service also increased domestic stocks holding target for 2026 amid a push from its central bank on the fund’s asset allocations.

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Under its current framework, the GPIF is permitted to make tactical allocation adjustments of as much as 5 to 6 percentage points around the 25% target for each asset class. 

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In practice, however, the fund has adhered closely to its preset targets for years, suggesting that a sudden shift toward domestic assets in response to political comments would risk undermining its credibility.

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The finance ministry “should not have the power to ask GPIF such request,” said Diego Lopez, managing director at data and consulting firm Global SWF. “This unilateral request can, in our opinion, signal poor governance and conflict of interest.” 

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Financial markets initially reacted to Katayama’s remarks on speculation that even a modest change in the investment strategy of the $1.8 trillion fund could have a significant impact. The yen strengthened about 0.5% to 161.60 per dollar, while the yield on the benchmark 10-year Japanese government bond fell by more than 10 basis points.

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Some market participants viewed Katayama’s remarks as an attempt to stem the yen’s latest slide and the selloff in government bonds.

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“Her comments seem to be interpreted as a verbal intervention, especially aimed at halting the rise in bond yields,” said Takahide Kiuchi, executive economist at Nomura Research Institute.

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—With assistance from Echo Wong.

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