The failure by Prime Minister Shinzo Abe's government to ensure a smooth succession at the helm of GPIF highlights the difficulties in achieving the deep-seated reforms it says are needed to revive the long-moribund economy.
The government last year pressed GPIF to slash its holdings of low-yielding government bonds and double its target for stocks, as part of Abe's plan to jolt Japan out of two decades of deflation and fitful growth.
But while the shift in GPIF's 137 trillion yen ($1.1 trillion) in assets has helped drive Tokyo Stocks to a 15-year high this week, a promised overhaul of GPIF's organisation, professionalizing its management and making it more independent, has bogged down.
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Mitani, a 66-year-old former Bank of Japan board member, initially opposed the dramatic fund reallocation, officials have said. He is in less-than-robust health and only reluctantly accepted the new interim appointment, which is to be announced this month, the sources said.
"Private sector executives would have had to quit their companies ahead of the busy shareholder meeting season, so it was hard to approach them about this," the source said. "But it's completely impossible as long as the situation around reforms is so unclear."
Global investors have been closely watching who would head the fund when Mitani's term expired. Its portfolio, bigger than Mexico's annual economic output, makes it a huge market presence and a bellwether for other big Japanese institutional investors.
Mitani's nomination comes after months of sometimes acrimonious debate between labor unions, bureaucrats and politicians failed to produce governance reforms that Abe said would ensure the GPIF's safe move into riskier assets.