JAPAN - Japan's public pension fund sold more government bonds than it bought for the first time in nine years, underscoring concern that an aging population will make domestic investors less able to finance state borrowings.
The fund sold a net 443.2bn yen ($5bn) of Japanese government bonds in the year ended March 31, according to Bank of Japan data released last month. It held 79.5trn yen of the securities at the fiscal year end, 11.6% of the outstanding amount.
Households have funded Japan's record debt because much of their 1,400trn yen in financial assets is being used by banks, pension funds and insurance companies to buy government bonds.
More retirees will tap their pensions as the population gets older, a trend that the diminishing ranks of young people will find difficult to offset, said economist Junko Nishioka.
"The large domestic pool of savings, which has helped absorb government bonds, is going to shrink," Nishioka said. "It won't affect bond yields in the near term, but it will become a huge problem in the long run."
Yields on Japan's 10-year bond have held below 1.4% for most of this year and were 1.125%at 3:55 p.m. in Tokyo. The Nikkei newspaper reported the information on the pension fund's bond sales earlier today.
Prime Minister Naoto Kan has been warning that Japan's finances may collapse unless it reins in the world's biggest public debt. His idea of an increase in the 5% sales tax to help pay for welfare costs for the elderly didn't resonate with voters in a July 11 election, as his coalition lost its majority in the upper house.
"The only way Japan can survive is to undertake fiscal rehabilitation at the same time as boosting economic growth," said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. "Japan should stop runaway budget deficits as early as possible."
Even as it struggles to contain its liabilities, Japan has benefited from low borrowing costs because about 94% of its bonds are held by domestic investors. The country may need to increase dependence on foreign buyers of its debt over time because of the graying population, according to Finance Ministry official Masaaki Kaizuka.
"We may see the need to increase reliance from abroad, whether we want to or not," Kaizuka, director of debt management, said on May 12.
The rising number of retirees increases pension payouts, prompting funds to dig into reserves and leaving less leeway to invest in government bonds, RBS's Nishioka said. Reserves for national and employee pensions are estimated at 128trn yen as of March 2010, down from 141trn yen three years earlier, according to finance ministry data.
The Centre for Social Justice is calling for the state pension age to be raised to 70 by 2028 and to 75 by 2035, a much faster rise than currently planned.
The High Court has blocked the £12bn transfer of Prudential's annuity book to Rothesay Life, citing the insurer's lack of "established reputation" and differing "capital management policies".
Jonathan Stapleton speaks to Punter Southall Governance Services director of outsourced pension services Clare Owen about the firm's latest reseach into the effectiveness of trustee boards.