JPY: Pension funds’ JGB selling reaccelerates – Nomura

Yujiro Goto, Research Analyst at Nomura, suggests that the trust banks, which manage pension funds’ money, accelerated JGB selling in the market in January, according to JSDA.

Key Quotes

“They sold JPY443bn ($3.7bn) of JGBs for the first time in two months. The amount of monthly net selling was also the largest in three months. They sold super-long JGBs especially aggressively (JPY340bn or $2.8bn), the highest pace in eleven months.

In contrast, pension funds likely continued to purchase foreign assets and domestic equities aggressively in January. Trust banks bought JPY608bn ($5.1bn) of Japanese equities for the second month in a row, according to JPX. While they sold Japanese equities temporarily in November when equity prices recovered, pension funds have re-accelerated their purchases of domestic equity recently, amid weak price action. They also bought foreign equities aggressively, to the tune of JPY518bn ($4.3bn). Although pension funds likely slowed their foreign bond investment to JPY151bn ($1.3bn), their appetite for foreign assets remains strong. We expect pension funds to remain net buyers of foreign assets for the time being, as JPY appreciation encourages them to purchase foreign assets for rebalancing purposes.

The biggest pension fund in Japan, GPIF, is likely to announce its Q4 2015 financial results and the latest portfolio update as of end-December later this week. The domestic bond share was 39.0% as of end-September, while its central target is 35.0%, and the fund is unlikely to have reached its target portfolio yet. We judge the portfolio shift by GPIF and other public pension funds has not finished yet and they are likely to remain net buyers of foreign assets. As we expect the US economy to avoid recession, we think USD/JPY appreciation is more likely, and pension funds’ flow should contribute to the gradual USD/JPY appreciation.”