World's Biggest Retirement Fund Considers Selling Its Japanese Bonds

Tyler Durden's picture

While in the past 3 months both the USDJPY and the Nikkei index have soared on the same vague mix of promises (than can never be delivered), and threats (by central bankers, which work only as long as they remain purely abstract and are not acted upon), one security that has barely budged are Japanese bonds: without doubt the fulcrum security that will put a premature end to Abe's latest attempt to reflate an economy, whose total debt is a ridiculous 2000% of annual public revenues, and which will spend half of its annual tax income on interest expense if rates merely double from their record low levels. Until now: Bloomberg reports that Japan's Government Pension Investment Fund: the largest retirement fund in the world overseeing 108 trillion yen ($1.16 trillion), and historically the biggest buyer of Japanese bonds, "will begin talks in April about whether to reduce its 67% allocation to domestic bonds." Read: sell, which may be why we have already seen a rather steep move across the JGB complex overnight, because one the largest player in the space moves, everyone else follows as nobody wants to be the last seller left.

And once the selling begins, logically so does the countdown to the end of Japan's latest reflation attempt, as like it or not, Japan can not afford rising rates, no matter how high it blows the stock market bubble (which by the way is unchanged in non-yen terms), as the alternative is a full blown banking sector crisis, coupled with a public funding crisis.

And also because this time is no different from all the other times Japan has done just this. Only on no previous occasions did Japan have some JPY1 quadrillion in public debt, or nearly 250% in debt/GDP.

From Bloomberg:

The GPIF, as the fund created in 2006 is known, didn’t alter the structure of its holdings during the worst global financial crisis in 80 years or in response to the 2011 earthquake and nuclear disaster. Talks to shift its positions come as Prime Minister Shinzo Abe and the Bank of Japan pledge to restore economic growth and spur inflation, which will mean higher interest rates, Mitani said.


If we think about the future and if interest rates go up, then 67 percent in bonds does look harsh,” Mitani, who was an executive director at the Bank of Japan when it bought shares from banks in 2002, said. “We will review this soon. We will begin discussions for this in April-to-May. Any changes to our portfolio could begin at the end of the next fiscal year.”


GPIF, one of the biggest buyers of Japanese government bonds, held 69.3 trillion yen, or 64 percent of total assets, in domestic bonds at the end of September, according to its latest quarterly financial statement. That compares with 12 trillion yen, or 11 percent, in Japanese stocks. The asset manager had 9.6 trillion yen, or 9 percent of its portfolio, in foreign bonds and 12.6 trillion yen, or 12 percent, in overseas stocks.

This is a tectonic shift for an asset allocator who has been steadfast in what it buys:

GPIF is the biggest pension fund in the world by assets under management, according to the Towers Watson Global 300 survey in August, followed by Norway’s government pension fund.


The portfolio structure has been broadly unchanged since 2006 when it was formulated with an outlook for consumer prices to rise 1 percent annually. Instead, they have fallen.


“The portfolio was based on a prerequisite of things such as long-term interest rates at 3 percent on average for the next 100 years,” Mitani said. “Whether this is good will be a possible point of discussion.”

Good luck with that because momentum plays and chasing "hot money flows" always, without fail, end up with a Hollywood ending. As for the "100 year forecast" confusion, it stems from the glaring contradiction that is debt monetization by the BOJ coupled with a government mandate to crush the Yen. The fear is that at least for the time being, if not in the long-term, the latter will overtake the former.

JGBs were how we made money over the past 10 years,” Mitani said. “The BOJ said that they are increasing buying bonds, but they’re also putting power into lowering interest rates. If the economy gets better, then long-term interest rates like a 10-year yield at less than 1 percent are unlikely.”

Yet where the real comedy is about to begin is that instead of investing people's retirement money in at least modestly safe securities which the BOJ openly monetizes, the GPIF will focus on some riskier assets: "The fund may increase holdings in emerging market stocks and is evaluating alternative assets, he said." Good luck with the former: Japan will be only some 10 years behind the curve. As for "alternative assets", if this includes gold, prepare for liftoff as all other retirement fund managers across the world, who have a blended allocation to gold somewhere between 0% and 0.5%, piggyback on Japan's example.

At the end of the day, however, none of the above matters. Japan's Yen will fall a little more, its equities will rise, but all that matters is when and if the bond tumbles. Once that happens, and once Japan's leaders take a look at the chart below, first presented in "Japan's WTF Chart", everything will be quickly put back in its original place, Abe will be "retired", and this latest experiment in ending Japan's self-sustaining three decade long liquidity trap will be promptly forgotten.

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NoWayJose's picture

No worry. Ben will buy 'em.

FEDbuster's picture

Looking forward to the "Kyle Bass was right" Youtube video.

Peter Pan's picture

Why can't the Japanese government buy them instead? Isn't that what Ben does already with US Bonds?

FEDbuster's picture

BOJ already does buy .gov bonds. Now they will have to buy more, just like the Bernak.

Half_A_Billion_Hollow_Points's picture

"Looking forward to the "Kyle Bass was right" Youtube video."


Those will be wonderful.  Also looking forward to the MSM nobody could have predicted this; one-in-billion-years event!

bobthehorse's picture

Japanese bonds?

Are you kidding me?

I've got your Japanese bonds.

I've got em right between my legs.


Fidel Sarcastro's picture

Uhhhhh, sounds bullish - right?????

ZerOhead's picture

Running of the bulls-ish actually.

Best to get out of Tokyo before the thundering herds arrive...

Cognitive Dissonance's picture

Last one out of Japan please turn out the lights.

Manthong's picture

..and last one out, please remember to reclaim your tanto from the coat check lady.

ZerOhead's picture

After you clean up the Fukushima 4 spent fuel pond please and thank-you...

Rick64's picture

Sounds like that game called Hot Potato.

TotalCarp's picture

That doesnt take a genius, question is what yen does once rates start to go...

goldenbuddha454's picture

Doesn't she sing that song "Brass in Pocket"?

jonjon831983's picture

Maybe some other pension funds would like to sell stuff: "Pension funds sue Blackrock, allege "looting" at iShares"


"Laborers' Local 265 Pension Fund of Cincinnati and the Plumbers and Pipefitters Local No. 572 Pension Fund of Nashville allege that several iShares ETFs spent funds on "grossly excessive compensation" to agents affiliated with the ETFs, as well as on other agents, and they want to recover the funds for investors."

Seer's picture

I'm thinking that the punchbowl is gone...

bank guy in Brussels's picture

Blackrock with US $3.7 trillion under management, some of it for America's top oligarch families, quite owns the bribe-taking US federal judiciary, judges who are the servants of those families

While the plumbers and pipefitters think it is like some Hollywood movie in the US courts, ha!

Tho the lawyers will certainly be glad to take their pension money

Yen Cross's picture

 That fucktard "Abe" has his head so far up his Fukishima ass!

Yen Cross's picture

 USD /risk ?   The yen is declining as we post. The $ was yoked last week. \

 The yen is heavy. Really heavy!

q99x2's picture

Bernanke will buy that shit up like a lap dog. 1.16 tril no problem.

Being Free's picture

Holy fuck, Ben gets laid.  Chicks just love big guys with big JGB positions.

Seer's picture

Is this the Japanese people selling themselves out?  Are they saying that they don't have a bright future?

I'm thinking that this marks the end.  We can stop talking about lost decades and start talking about a civilizations that's soon to be lost?

Spigot's picture

Someone is having CASH FLOW PROBLEMS!

Interestingly coincidental with half the lights going out at the Superbowl...

neutrinoman's picture

The yen isn't going to fall gently -- it will take the large initial brunt of this implosion. The bond implosion will be slower, albeit inexorable, and climax later.

hairball48's picture

Anyone know if Kyle Bass is still short JGBs?

Half_A_Billion_Hollow_Points's picture

yes, he sure is.  Youtube "Americatalyst 2012". 

Triple A's picture

the party won't end until the first one walks out the door, but no one wants to take the first step. please someone.... anyone.... this is getting ridiculous.

Bear's picture

All the other CB's have been effective in mummbling, it's Japan's turn

hawk nation's picture

Kyle Bass better have good security since i think the central bankers will not tolerate anyone telling the truth about their schemes

Non Passaran's picture

Of course, look how they assassinated Ron Paul!

bank guy in Brussels's picture

In many ways, they did assassinate him, with the media control preventing his wider popularity

But Ron Paul with his 'work within the system' approach was also useful to the oligarchs, unwittingly or not ... To them he was a 'heat sink' for all the 'Liberty Movement' and similar dissident Americans

The 'fight the Fed' meme is too complex to reach most Americans' comprehension, so it is allowed and encouraged

Certainly there are other US Congresspeople and government figures who turned up recently murdered and dead after too-sharply investigating or acting on some corruption issues

Sonny Bono, the singer of Sonny & Cher ... Sonny Bono became a US Congressman on the key House Judiciary Committee with the ability to investigate corruption at America's highest levels

Sonny Bono was murdered in 1998 doing exactly that ... media cover-up claimed it was a 'ski accident' and that excellent skier Sonny went head-on into a tree and died ... totally bogus, even ex-FBI people say it was a murder

US Senator Paul Wellstone in 2002, after leading opposition the US Iraq War ... 'accident' ... a warning to others

US Congressman Wayne Owens 2002, found dead in Israel while investigating the triangle of Israeli-Palestinian Authority-US corruption ... 'unsolved'

Or US Federal Judge John Roll shot dead in Arizona in 2011 shortly after ruling against Obama and the US gov't ... drugged up 'lone gunman' promptly supplied, 'confessing' and otherwise barely seen

goldenbuddha454's picture

 Ron Paul, Bill Gross, Mark Faber, Peter Schiff, Nouriel Roubini to name just a few are higher up on the totem pole.  Kyle Bass is "Johnny-come-lately" in the world of anti-fed zealots.  I think Kyle is pretty safe compared to some of the others.

cornflakesdisease's picture

Well, my inside man who just about bats 100% warned me about two weeks ago that Japan may fall apart by this winter.  If they want 2% inflation, which translates into 3% interest; they are toast.  They can barely service their debt at 0%.  In fact Japan spends about 25% of their budget on interest on national debt.  But hey, let's take it up to 300% of GDP.  3.5% = 50% of their budget on interest.  Ouch.  Interesting to see who these governments deal with this.

Spigot's picture

With the BOJ as enabler (such as the FED "buying" US bonds totalling 100% of annual deficit issuance), and buyer of last resort, they could (as we) essentially keep "interest" rates at zero and simply print the money to force that money into the markets to "create" their inflation figure.

IMO they tried to export their way out of their credit/debt implosion (1989), but China swallowed the export market underneath them.

Now (IMO) the G7/8 have decided that "controlled" and co-ordinated money printing is their only option. Pump up the money supply, let inflation plump up the GDP vs total debt so that they get the TotalDebt/GDP figures of the world back down to 100% +/- . Japan had to sign on to that, as they all did, in order to co-ordinate a synchronized fiat currency devaluation via money printing.

That is my read.

Non Passaran's picture

I agree. This farce can go on for a long while.
Ben proved it. A very successful central banker, by that criterion.

bank guy in Brussels's picture

Yes, there was a good technical analysis about Japan about a year ago or so on ZeroHedge, have not been able to find the link

But they went through all these 'Japan will blow up' scenarios, and their conclusion was that, contrary to Kyle Bass,  Japan could continue to float the game till at least 2018, maybe 2020, using all the clever tricks still available

And by then of course a lot of the rest of the world might blow up before Japan does

Spigot's picture

IMO the biggest, darkest, deepest hole out in the pitch black night of financial anti-transparency, is derivatives. Somewhere, somehow, something will go "bump", which will knock in to 10 others somethings and it will end up like a nuclear chain reaction in about 2-4 hours.

Tursas's picture

Have you ever checked the other side on their balance sheet?  Remember to sit down before you do venture there!

W T Effington's picture

I am a bit confused by Tylers commentary. Tyler argues that they will need to abandon the reflation policy in order to keep rates low. I think it may be just the opposite. The only way in my view that they will be able to keep rates low temporarily is if they monetize the debt. When people start selling JGB's who is going to buy them up. Rates will rise and the Japanese government will have to print to fight it. Either they let their bond market die - or they kill the currency, buy their own debt, and postpone the bond market death. I imagine they will kill the currency first which will buy them some time on the government bond collapse. We all know that governments love to pretend and extend. Preserve the status quo as long as possible. Either way, they are fucked. They cant abandon the refaltion policy. Thats the only thing that will hold up the bond market. Am I missing something that Tyler is seeing?

chindit13's picture

Yes, I think Kyle Bass is short, so him being a natural buyer, the pension fund might want to invite him to Tokyo to make the rounds of Ginza and Roppongi.  A little good will can't hurt.  He might also bring some of his nickels and spend some time in a Pachinko parlor.  Bottom line is he has to cover his shorts sometime, and doing it while one can still get paid might justify leaving something on the table.

Ira shai ma se, Kyle-sama

Rick64's picture

Had some good times in Roppongi.

fukidontknow's picture

Abe wants to head hunt in Iran.

mendigo's picture

So large financial operations become the enemy of the state. Could be interesting.

Colonel Klink's picture

Tick tock bitchez!

Eventually people will wake up to the alarm.

rehypothecator's picture

I have this recurring nightmare that one day, they checked inside the vaults, and to their horror they discovered all the bonds were missing, and had been replaced with IOUs.  

Poor Grogman's picture

This govt debt has been about to blow apart for decades.

And Yet...

Japan survives the worst nuclear accident ever and, a tsunami, as well as having china breathing down their neck, as well as having no natural resources/hydrocarbons, and still they limp along.

Now ask yourself who is paying for this ( right now) ?

My answer is that the R/E debt holders with underwater mortgage debt are paying.

Many were paying out loans on grossly underwater property from the boom times. They provide much of the demand for ¥ for loan repayment which the BOJ happily prints into existence by way of Japanese Government spending.

Next to pay will be anyone who has retirement funds in "the system"

Note to self.... Don't be in one of those two groups...

trader1's picture

they could also buy other assets with leverage without having to sell JGBs.  this has the same effect of reducing the % of the portfolio allocated to JGBs.