Japan’s Mega-Pension Fund GPIF is Ready for Currency Hedging

GPIF hedging against currency risks on even a small part of its holdings could make big waves.

Japan’s Government Pension Investment Fund (GPIF), the largest pension fund in the world, is now prepared to make hedges on a variety of currencies, the head of the fund said on Friday.

At the Reuters Global Investment 2019 Outlook Summit, GPIF President Norihiro Takahashi told Reuters as much. However, the President of the ¥170 trillion yen ($1.5 trillion) pension fund refused to confirm whether GPIF was already doing so.

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Norihiro Takahashi the President of Government Pension Investment Fund (GPIF)
Norihiro Takahashi
Source: The Wall Street Journal

Currency hedging, simply put, is the act of entering into a financial contract to protect against changes in currency exchange rates. These changes can be unexpected, expected or anticipated.

So why is it important if GPIF starts to do this? Well, the fund has ¥68.8 trillion worth of holdings of foreign assets. If the pension fund hedges against currency risks on even a small part of this, it could have a large impact in the currency exchange market as the yen would be sharply boosted.

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Until now, this is why it is largely believed that GPIF has barely done any currency hedging in the past, unlike the majority of other Japanese institutional investors.

The article published by Reuters does not give any further information about when GPIF might start hedging currencies and to what degree the pension fund would do so.

GPIF investment portfolio increases to ¥165.6 trillion in Q2

At the beginning of this month, GPIF reported its second-quarter results ended September 30, for its 2018 fiscal year. The Japanese fund reported a gain of 3.42 percent, increasing the value of its investment portfolio to ¥165.6 trillion.

In comments posted on its website, Takahashi said the solid results were thanks to gains for US and Japanese stocks during the period which, in turn, were driven by solid economic data and corporate earnings.

Furthermore, the President also cited the decline of the yen in global currency markets, as a result of the latest hike from the US Federal Reserve, boosting the value (in yen terms) of its more than 40 percent allocation to overseas stocks and bonds.

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