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Japan Pension Boosting Asset Sales to $48 Billion - BusinessWeek

September 03, 2010, 1:08 AM EDT
By Keiko Ujikane, Masaki Kondo and Tatsuo Ito
Japan Business Center
Sept. 3 (Bloomberg) -- Japan’s public pension fund, the world’s largest, will increase asset sales by more than five times to about 4 trillion yen ($48 billion) this fiscal year as payouts rise with the nation’s population aging.
That follows 720 billion yen raised in the fiscal year ended in March, all through sales of its Japanese bond holdings, Takahiro Mitani, president of the Government Pension Investment Fund, said in an interview in Tokyo yesterday. Japanese bonds accounted for 71 percent of the GPIF’s 117 trillion yen of assets as of June 30, while domestic stocks made up 11 percent, the fund’s statements show.
“Insurance premiums rise little by little every year, but it isn’t catching up with the increase in payouts,” said Mitani, a former executive director at the Bank of Japan. Bonds are the most suitable asset to sell at this moment, he said, without detailing whether they would again be the only securities sold.
The fund manages workers’ retirement funds in the most rapidly aging population among Group of Seven nations. The first of Japan’s baby boomers will turn 65 in 2012, making them eligible for pension payments and straining the public coffers.
Japanese government bonds have returned 2.5 percent this year, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit. In contrast, the Nikkei 225 Stock Average has lost 14 percent, the second-worst performer after China’s Shanghai Composite Index in the world’s 30 biggest stock markets, Bloomberg data show.
Aging Population
“The 4 trillion yen figure exceeds my estimate of about 3 trillion yen,” said Takahiro Tsuchiya, a strategist at Daiwa Institute of Research Ltd. in Tokyo. “Given bond yields have fallen this much, the fund is more likely to sell domestic bonds, and I don’t think they will sell stocks at this moment.”
People aged at least 65 years accounted for 22.2 percent of Japan’s population as of the end of last year, the highest among the G-7 nations, data compiled by Bloomberg show. That compares with 12 percent in 1990. About 8 million, or 6 percent of the population, were born between 1947 and 1949, regarded as the baby boomer generation in Japan, government data indicate.
Japan’s 10-year bond yields fell to a seven-year low of 0.895 percent on Aug. 25. Yields have surged since then on speculation a successful leadership challenge by Ichiro Ozawa would lead to a government that would issue more debt to fund spending programs.
Benchmark 10-year yields surged 14 basis points this week, heading for the biggest five-day advance since the period ended May 16, 2008.
Ozawa Challenge
Ozawa, who heads the ruling party’s largest faction, said last week he will challenge Prime Minister Naoto Kan at the Democratic Party of Japan’s leadership contest on Sept. 14. He has pledged to double a monthly childcare allowance and extend the period of subsidies for energy-efficient household appliances. The winner is assured of being prime minister because the DPJ controls the lower house.
“I’m very concerned about Japan’s fiscal condition, but I don’t think bond yields will surge to 2 or 3 percent soon,” Mitani, 61, said. “If the government takes no action, there’s no doubt that the nation’s finances will become unbalanced sometime in the future.”
Japan’s public debt is approaching 200 percent of the nation’s gross domestic product, the highest among members of the Organization for Economic Cooperation and Development, according to the OECD.
--Editors: Garfield Reynolds, Nicholas Reynolds.
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Tatsuo Ito in Tokyo at tito2@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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