Analysts say this is a clear sign that the GPIF, which has the potential to have a significant market impact because of its size, could move more funds out of bonds. They add the main implications are that first, more GPIF funds move into equities and then into higher-yielding assets overseas, keeping the yen weak.
"There have been some rumblings about changes to the GPIF for a while but these comments are the most tangible," said Sean Callow, senior currency strategist at Westpac Bank in Sydney.
"It would make sense that they [the GPIF] would look to take on more risk in an environment that the bank of Japan (BOJ) is committed to buying JGBs, driving out other buyers. The first move is likely to be into higher-yielding domestic assets such as equities as there is no currency risk," he added.
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Japanese bonds accounted for about 55 percent of the GPIF portfolio at the end of December, according to data from the pension fund. That's down from almost 65 percent at the end of June 2012. The fund held 17 percent of its assets in local shares at the end of December, up from almost 12 percent in June 2012, suggesting a gradual shift away from bonds.
Anticipation of changes at the GPIF may help explain recent market moves. The Nikkei hit a five-week high on Friday, while the yen held near a five-week low of about 103.15 per dollar.
"The yen has been under pressure of late, mainly due to improving risk sentiment and as investors' expectations of the Government Pension Investment Fund considering foreign bond investments rose," analysts at Credit Agricole said in a note.
"According to the Government Advisory Panel the fund does not need to focus on domestic bonds given rising inflation. Such expectations combined with a good chance of risk sentiment improving further should make a case of the yen remaining subject to downside risk," they added.
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