Japan signals massive pension shift to domestic assets, sparking rally in yen, bonds

TOKYO - Japan's finance minister said on Friday the government aims to steer the country's vast state pension funds to "substantially" increase investments in domestic assets, sparking gains in the yen and bonds as investors bet billions of dollars could be channelled into Japanese markets.

The comments put the spotlight on the Government Pension Investment Fund (GPIF), the world's largest pension fund, which managed 293.6 trillion yen ($1.8 trillion) in assets at the end of March. Any shift in its portfolio strategy would reverberate across global financial markets.

"We would like to pursue measures that would encourage pension funds, including GPIF, to make substantially greater investments in Japanese financial assets," Finance Minister Satsuki Katayama said at a regular press conference.

The prospect of GPIF directing more money into yen-denominated bonds and other domestic assets could be a game changer for Japanese markets. Investors responded swiftly, driving gains in both the yen and JGBs on expectations that a sizeable pool of pension capital may be steered home.

The yen, which has been under selling pressure for months and hit 40-year lows last week, jumped around 0.6% to a peak of 161.285 on Katayama's remarks before pulling back a bit to 161.67 per dollar.

Japanese stocks also rallied hard, while benchmark 10-year JGB yields made their steepest drop in more than a year, falling 11.5 basis points to 2.760%.[JP/][FRX/]

The latest news highlights how urgently Tokyo is searching for ways to anchor markets buffeted by sharp swings in bond yields and the currency. With government spending remaining expansive and the Bank of Japan moving cautiously on rate hikes, officials face growing questions over inflation pressures, currency and bond market stability and Japan's fiscal outlook.

"Right now I think the market is taking it as a positive sign. Lately the yen has been weakening and the JGB market has also sold off and I guess (the government) is trying to figure out a solution to overcome this market volatility," said Sim Moh Siong, FX strategist at OCBC in Singapore.

"I am not sure if this is a silver bullet, but it could work in helping to stabilise sentiment."

EMBATTLED YEN, BOND MARKET RUCTIONS PRESSURE POLICYMAKERS

The yen's prolonged weakness has become a growing headache for policymakers, inflating the cost of imported raw materials and worsening the squeeze on households and businesses already grappling with higher energy prices linked to the Iran war.

The GPIF currently maintains roughly equal allocations to domestic equities, foreign equities, domestic bonds and foreign bonds.

Its portfolio underwent a major overhaul in 2014 under former Prime Minister Shinzo Abe as part of his Abenomics growth and structural reform agenda, boosting its holdings of stocks and other riskier assets.

More recently, in 2020, the GPIF raised its allocation of foreign bonds to 25% from 15% and cut its allocation of low-yielding domestic bonds to 25% from 35%.

A spokesperson at GPIF declined to comment on Katayama's remarks.

"The current basic portfolio was formulated to achieve, over the long term and with the minimum necessary risk, the investment targets set by the welfare minister," the spokesperson said.

The fund assesses the portfolio annually as appropriate, she added.

Japan held a record 561.75 trillion yen ($3.5 trillion) in foreign assets in 2025, making it the No. 3 global creditor after Germany and China. A big chunk of those Japanese assets lie with the GPIF.

Katayama said Japan is transitioning to a new growth-driven economy under Prime Minister Sanae Takaichi's administration and has entered a period of positive interest rates with higher stock markets. "The government wants to help households directly benefit from gains generated by economic growth," she added.

It remains unclear how the government could engineer any portfolio shift.

The GPIF is mandated to invest solely in the interests of pension beneficiaries and cannot deploy its assets to advance government policy goals. Oversight of the fund rests with the Ministry of Health, Labour and Welfare, not the finance ministry.

"This is not something I can decide on my own, but the government will aim to discuss the matter while building consensus internally," Katayama said.

The finance minister's remarks came as concern over the administration's expansionary fiscal policy and risk of political interference in monetary policy sparked a selloff in Japanese government bonds (JGB), pushing yields to multi-decade highs.

Those worries intensified after the Takaichi government's draft economic blueprint said it was "very important for monetary policy to be guided appropriately to achieve a stronger economy."

In an apparent effort to calm market nerves, Katayama said the BOJ remained free to conduct monetary policy operations "whenever circumstances warrant, independently of any government comments."

The final version of the economic blueprint is expected to be approved by cabinet on July 21, government sources told Reuters.

($1 = 161.7300 yen)

(Reporting by Makiko Yamazaki and Leika Kihara; additional reporting by David Dolan, Satoshi Sugiyama, Tamiyuki Kihara and Rae Wee; Editing by Shri Navaratnam)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published July 10, 2026 at 4:06 AM.