Ban upheld on direct GPIF investment in stock market

JIJI, Staff Report

The ruling party decided Tuesday to keep in place a ban on direct stock investment by the Government Pension Investment Fund amid ongoing turmoil on the markets. The GPIF manages public pension funds in Japan.

Whether or not the GPIF should be allowed to invest in stocks directly has been the focus of talks on structural reforms, but the specter of possible heavy losses leaves some people cool to the idea.

The decision was made at a meeting of the Liberal Democratic Party’s project team on pension issues. Komeito, the LDP’s junior coalition partner, is expected to make a similar decision soon.

Based on the decisions, the welfare ministry will craft a bill on reforms that would introduce an executive committee with a collegial decision-making system in order to reduce the power of its president. The bill would leave the ban on direct stock investment in place.

Welfare minister Yasuhisa Shiozaki told a news conference improved governance is important for the GPIF to win trust from pension savers.

The LDP project team also allowed the use of forward foreign exchange and stock index futures trading to hedge against losses.

The move came after Prime Minister Shinzo Abe suggested Monday that pension benefits could shrink if the GPIF makes losses on its investments.

“Payments will naturally be affected if the expected profits are not generated,” Abe said at a House of Representatives Budget Committee meeting. “If the situation does not allow benefit payments, they will need to be adjusted.”

Abe was replying to a question from Yuichiro Tamaki of the Democratic Party of Japan, the main opposition force, about the recent heavy losses in Japanese stocks.

Abe also stressed that temporary gains and losses are not reflected immediately in pension payouts as the GPIF’s asset management performance is evaluated on a long-term basis.

The LDP decision Monday came after the pension reform subcommittee of the Social Security Council, which advises the welfare minister, failed to reach a conclusion on lifting the ban on direct stock investments.

The Japan Business Federation and the Japanese Trade Union Confederation opposed lifting the ban, arguing that such a move could lead to direct control of private companies by the state-affiliated institution.

Proponents — including stock market investors, anticipating higher prices — called for the removal of the ban, citing advantages such as a reduction in the GPIF’s payment of commission fees for its stock investments.