July Japanese pension rebalancing estimate

Research evidence excerpt

July Japanese pension rebalancing estimate

Barclays | Japan Flow Update

on yields, price declines have stood out mainly in the over-20y sector amid a broader upward

rate environment driven by fiscal concerns and developments in the Middle East. Among

issues with residual maturities over 10y, the 20y sector has outperformed others, while

declines have been pronounced in 40y bonds, including off-the-run issues, followed by 30y

bonds. JU11-19 stand out in particular. As discussed in GPIF: Rebalancing from foreign

equities to domestic bonds, 9 July, GPIF flows in the superlong sector tend to be

concentrated mostly in current issues, suggesting that JU19 may be more likely to see buying

interest (Figure 7, Figure 8). In the 5-10y sector, while current issues have been relatively

resilient, declines have stood out in off-the-run superlong issues such as JX14-16, JX23 and

JL150, which could potentially attract some buying. In the 1-5y sector, the issues that

declined were mainly off-the-run superlong issues, including JL107-110, JL115-117, JX2, JX3

and JX5, which could be relatively easy buying targets in this bucket.

• Topics: The Takaichi administration has suggested the possibility of the GPIF shifting back

toward domestic assets. While the specific details remain unclear, given current JPY rate

levels, a certain degree of reallocation back into domestic bonds would likely be justified

from a fundamentals perspective. Actual allocation changes may also be implemented ahead

of any official announcement, and the impact could become larger if other pension funds

follow suit. Such changes in asset allocation would likely exert significant downward pressure

on rates, particularly in the superlong sector, while the impact on JPY appreciation in FX