Japan Pension Fund Won’t Buy Domestic Bonds on Inflation Risks

Jan 24, 2014 10:11 am ET

Jan. 24 (Bloomberg) -- The world’s biggest pension fund said it won’t add to its holdings of Japanese government bonds because it sees “very limited room” for prices to rise as inflation accelerates.

“We won’t buy more JGBs,” Takahiro Mitani, president of the Government Pension Investment Fund, which manages 124 trillion yen ($1.21 trillion) in assets, said in an interview in Davos, Switzerland. “With inflation picking up, the room for JGB prices to increase is very limited. When the ones we hold mature, we will consider investing in other assets.”

Japanese stocks and foreign equities and bonds are among assets that the fund will look into, said Mitani. Japanese government securities returned 2.1 percent last year compared with a 7.3 percent gain from Italian government debt, according to Bank of America Merrill Lynch indexes. Japanese stocks rallied, with the Topix index advancing 51 percent.

Japan’s core inflation rose to 1.2 percent in November, the fastest pace since 2008, in a sign that Prime Minister Shinzo Abe’s unprecedented stimulus aimed at pulling the country out of 15 years of deflation is working. The rate climbed above its euro-area equivalent in October.

Rising consumer prices tend to dent demand for bonds as they erode the purchasing power of the securities’ fixed payments.

--Editors: Paul Dobson, Keith Jenkins