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Ultralow rate driving Japan's public pension fund out of JGBs

Higher allocation of equities increases fund's risk exposure

Japan's Government Pension Investment Fund earned a record quarterly return of more than 10 trillion yen in the October-December period, thanks to the global stock market rally.

TOKYO -- The Bank of Japan's zero interest rate policy is forcing Japan's Government Pension Investment Fund to take on more risk via an increased portfolio allocation to stocks, as near-zero yields have made Japanese government bonds nonviable as core holdings.

The GPIF aims to secure returns equivalent to the rate of wage growth plus 1.7 percentage points in order to make good on payouts. The fund overhauled its base asset allocation policy in October 2014 amid the reflation push by the government. The rationale behind the change is that a portfolio heavily biased toward JGBs would fall short of the yield target once the economy sheds deflationary pressures.  

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