Key facts
- Japanese corporate pension funds are increasing their investment in domestic bonds.
- This shift is attributed to rising long-term interest rates and the search for higher yields.
- Many funds had previously reduced their bond holdings due to low yields.
- The Government Pension Investment Fund (GPIF) is reviewing its portfolio and may reduce its domestic bond holdings.
- Some corporate funds are planning to reduce their exposure to long-maturity bonds due to yield risk.
Japanese corporate pension funds are increasingly reallocating capital into domestic bonds, a reversal of a multi-year trend of declining bond holdings. This strategic shift is primarily driven by the pursuit of higher yields as long-term interest rates in Japan rise, with benchmark bond yields reaching a 30-year high.
Many pension investors had previously reduced their exposure to bonds due to historically low yields, focusing instead on equities and alternative investments. However, concerns over potential yield increases and the need for diversification are prompting a review of bond strategies. The Government Pension Investment Fund (GPIF) is reportedly reconsidering its portfolio, potentially lowering its significant domestic bond ratio. Similarly, some corporate pension funds are planning to reduce their concentration in long-maturity bonds, which are most sensitive to yield fluctuations.
Funds are exploring new asset mixes and investment opportunities, such as allotting new funds to life insurer general accounts, which offer assured dividends. Tokyo Jitsugyo EPF, for example, plans to lower its equity ratio and increase its allocation to domestic bonds, including JGBs and yen-hedged bank loans. The Ministry of Health, Labor and Welfare is also preparing legislation related to pension investments.