(Bloomberg) -- The Japanese government proposed a higher investment return target for the nation’s largest pension fund, a move that may open the way for it to increase purchases of stocks.
The Ministry of Health, Labour and Welfare put forward a target yield for the $1.7 trillion Government Pension Investment Fund of 1.9 percentage points above wage growth rate, up from the current target of 1.7 percentage points. The proposal is part of the government’s review that takes place every five years.
Getting higher returns is becoming increasingly important for Japanese pension funds as the population continues to age and shrink at a time when the return of inflation raises the cost of living. In making its proposal, the ministry cited its desire to bring forward an end to a curb in raising public pension payouts that has been in place for about 20 years.
While the ministry said back-testing suggests the target is achievable under GPIF’s current model portfolio, the fund is due to review its strategy for the next five years by the end of March.
Almost half of analysts polled by Bloomberg in August said they expected GPIF to boost its allocation to Japanese stocks. It currently allocates a quarter each of its assets to Japanese stocks, foreign stocks, Japanese bonds and foreign bonds.
An allocation increase of 5 percentage points may translate into net buying of more than ¥10 trillion ($66 billion). The last time the GPIF raised its allocation to stocks was in 2014, when it more than doubled its allocation to both Japanese stocks and foreign stocks to 25% from 12%, a move that was seen as a part of then-Prime Minister Shinzo Abe’s efforts to reflate the economy.
©2024 Bloomberg L.P.