INTERVIEW-Pimco says shortening duration of JGB holdings on BOJ shift
TOKYO, Feb 5 (Reuters) - Pimco is shifting funds away from super-long Japanese government bonds into shorter-term debt on expectation the government's pro-growth policy and the central bank's more aggressive fight against deflation fighter will lead to a steepening yield curve, the head of its Japanese portfolio management said.
The Bank of Japan has taken its first step toward a regime shift by setting a 2 percent inflation target and reverting away from its past stance of tolerating deflation, said Tomoya Masanao.
"With the 2 percent inflation target now in place, whoever becomes the next BOJ governor will certainly be more aggressive in easing monetary policy than (incumbent Masaaki) Shirakawa," Masanao told Reuters in an interview on Tuesday.
"The BOJ had said it will keep interest rates low for a long time. Now it's saying it will keep rates low for 'very long'," he said, adding that expectations of prolonged ultra-easy policy will keep 10-year Japanese government bond (JGB) yields in a range of 0.7 percent to 1 percent this year.
Shirakawa said on Tuesday he would leave the BOJ three weeks earlier than the end of his five-year term on April 8, to match the retirement day of his two deputies.
Prime Minister Shinzo Abe made aggressive fiscal and monetary stimulus to beat deflation the centrepiece of his campaign in last year's lower house election that brought his party to power. Under heat, the central bank doubled its inflation target to 2 percent and made an open-ended commitment on asset purchases next year.
"The government is now taking a pro-growth strategy. The BOJ has shifted to a stance of seeking mild inflation. Given such changes in environment, you can't be taking the same approach on JGBs as in the past," Masanao said.
Investors must demand more premium for holding super-long JGBs on expectation that Abe's policies may finally pull Japan out of deflation, as well as the small but potential risk that they may drive up bond yields on fear Japan will have to sell more bonds than markets can absorb to finance huge fiscal spending, he said.
Pimco has been reshuffling its portfolio to shorten the average duration of its JGB holdings to about seven- to eight-years from about 10 years, betting on a steepening of the yield curve, he added.
California-based Pimco, or the Pacific Investment Management Co, is the world's biggest bond fund manager with about $2 trillion in assets under management globally.
(Additional reporting by Daiki Iga; Editing by Robert Birsel)