• Bloomberg


The massive Government Pension Investment Fund must be ready to buy more stocks should Prime Minister Shinzo Abe’s policies succeed in reviving the economy, according to its head of research.

“We may see structural reform and Japan as we know it may change,” Tokihiko Shimizu, director general of the research department at the ¥130 trillion fund, said in an interview Wednesday in Tokyo. “If we subscribe to that view, we must commit to different investment behavior than just trading within a boxed range. This is particularly true for local shares.”

While Japanese equity rallies faltered quickly in the past, this one may be longer-lasting, Shimizu said.

The GPIF needs to be more flexible about its investments and move beyond the traditional pension fund approach of selling when stocks rise to keep within allocation limits, he said. The GPIF should review its portfolio at least once a year, or whenever unexpected events move markets, he said.

The world’s largest investor of retirement savings overhauled its strategy last month, reducing domestic bonds and increasing local and foreign shares. The comments by Shimizu hint at the possibility of further change as the GPIF seeks better returns to meet swelling pension payouts as the population ages.

The fund will boost Japanese stocks to 25 percent of assets from 12 percent, it said Oct. 31 as it widened their deviation limit to 9 percent from 6 percent. That means the nation’s equities can make up 34 percent of the portfolio, compared with 18 percent invested in shares at the end of September.

Japanese stocks have almost doubled since elections were called in November 2012 that brought Abe to power. The Topix, the broadest measure of the Tokyo Stock Exchange, jumped 19 percent from an Oct. 17 low through Wednesday, spurred by additional monetary easing by the Bank of Japan and the GPIF’s decision to back Abe by buying more local equities. The Topix is still trading at about half its 1989 peak.

The GPIF should change its portfolio when needed, Shimizu said. It should also shift assets flexibly within deviation limits to reflect changes to the economy as well as global events such as decisions on monetary policy by the U.S. Federal Reserve, he said.

The fund’s new asset mix is based on eight economic scenarios for Japan devised by the welfare ministry, which oversees the GPIF. All cases assume gains in consumer prices and real wages, while the most bullish one envisages success in Abe’s policies to revive Japan. The ministry also said the GPIF should aim for returns of 1.7 percent above the rate of wage growth in its review of public pensions.

“We tried to make the most robust portfolio possible,” Shimizu said. “We must always be conscious of which scenario is likely to come true, and we should review the portfolio at least once annually, although this hasn’t been decided yet.”

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