Japanese government bonds (JGBs) primary dealers were confident that the reduction of Government Pension Investment Fund's domestic bond holdings will not affect the financial market due to Bank of Japan's bond-buying program. The third-largest holder of sovereign bonds has plans to decrease its JGBs to a maximum of JPY18 trillion or USD176 billion as it also reduces its allocation from 60% to 47%, based on an estimate by Bank of America Merrill Lynch. Credit Agricole SA, on the other hand, projected a 50% reduction, while Royal Bank of Scotland Group Plc estimated that the state pension fund will reduce to a low 45%. According to Bloomberg, the bond-buying program of Japan's central bank absorbs JPY7 trillion worth of debt.
The report said the money printing by BOJ Governor Haruhiko Kuroda was done in order to force domestic investors to place bets in riskier, higher-yielding securities , resulting to a target 2% inflation within two years. GPIF will reportedly publish its investment results as early as tomorrow, which will provide a preview of its last quarter plans while it is mulling over placing majority of its JPY121 trillion in real-estate investment trusts, overseas assets, private equity and commodities.
Credit Suisse Group AG director for fixed-income strategy Tomohiro Miyasaka said, "Bond yields won't rise as the BOJ would smoothly offset any JGB selling by GPIF with its purchase program. The BOJ will create a shortage of JGBs for investors to buy."
Yesterday, operation Rinban was launched, wherein BOJ purchased from financial companies JPY billion worth of JGBs. Bloomberg noted in its report that this was the 10th Rinban launched by the central bank of Japan. At the end of June this year, BOY has JPY150 trillion or 15.4% of government debt outstanding. GPIF and other public pension funds, on the other hand, has JPY69 trillion. Japan Post Bank Co has JPY 138 trillion in government debt.
Bank of America Merrill Lynch chief Japanese bond strategist Shogo Fujita said, "Any JGB selling from GPIF would be coordinated with BOJ buying to avoid spikes in yields and volatility. The truth is that GPIF does not want any negative impact on the market."
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