JAPAN - Japan's public pension fund, the world's largest, will increase asset sales by more than five times to about ¥4trn ($48bn) this fiscal year as payouts rise with the nation's population ageing.
That follows ¥720bn 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 (GPIF), said in an interview in Tokyo yesterday. Japanese bonds accounted for 71% of the GPIF's ¥117trn of assets as of June 30, while domestic stocks made up 11%, 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% is 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% the second-worst performer after China's Shanghai Composite Index in the world's 30 biggest stock markets, Bloomberg data shows.
"The ¥4trn figure exceeds my estimate of about ¥3trn," 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% of Japan's population as of the end of last year, the highest among the G7 nations, data compiled by Bloomberg show. That compares with 12% in 1990.
About 8 million, or 6% of the population, were born between 1947 and 1949, regarded as the baby boomer generation in Japan, government data indicates.
Japan's 10-year bond yields fell to a seven-year low of 0.895% on August 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 programmes. 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, 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 September 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% 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% of the nation's gross domestic product, the highest among members of the Organisation for Economic Cooperation and Development, according to the OECD.
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