Haruhiko Kuroda, the Governor of the Bank of Japan (BOJ), is realizing that his “loose” or “zero interest rate” monetary policies are hurting Japan’s pension fund. Just like The Federal Reserves’ low interest rate policies have done the same to US pension funds.
(Bloomberg) — The world’s largest pension fund is the latest in an array of investors indicating that the Bank of Japan may need to do more to let bond yields rise to tempt them back to the Japanese market, according to Goldman Sachs Group Inc.
Japan’s Government Pension Investment Fund said Wednesday it will give itself more flexibility on how much it invests in Japanese bonds, raising the prospect that it’ll trim its $387 billion stash of domestic debt and sending a warning shot to the central bank, which owns over 40 percent of the market.
With the GPIF already near the bottom of its permitted allocation to government bonds to begin with, the move is effectively a formal recognition of an existing unofficial strategy, analysts including Michael Cahill wrote in a Sept. 26 research note.
“It shows that the rates selloff has so far not been enough to entice long-term domestic investors back into the market,” he said.
Japanese life insurers have proven similarly reticent to bring home funds parked overseas to invest in domestic bonds, even after the BOJ’s first policy tweak in almost two years in July, amid criticism the size of its holdings is distorting the market.
The Japanese Sovereign curve has gone from all-positive when Kuroda assumed the duties as BOJ Governor to having negative yields for tenors less than seven years. Hardly a great investment for Japan’s pension fund.
Like in the US, BOJ’s zero interest rate policies (ZIRP) and yield curve management have encoouraged pension funds to seek higher yields elsewhere.
Kuroda is seeing higher yields on Japanese Treasuries … and doesn’t like it.