GPIF fast approaching target? Still JPY negative - Nomura

FXStreet (Bali) - Nomura's Global FX Strtegy Team takes a look at the progress on pension funds’ asset reallocation shift, which they note are rapidly approaching their target in foreign assets, with an expected remaining amount of JPY9trn still available by the GPIF and three small public pension funds. Despite the target nearing, Nomura anticipates JPY still being negatively affected by flow dynamics.

Key Quotes

"The GPIF is likely to announce its March 2015 portfolio soon. If the fund continues to purchase foreign assets at as rapid a pace as in Q4, 60-70% of the portfolio shift into foreign assets may have been done by May 2015. In this scenario the remaining amount of foreign assets that the GPIF would increase by would be around JPY4-5trn."

"As three small public pension funds are likely to need to purchase more foreign assets, we estimate JPY9trn of foreign investment is still necessary by the GPIF and three small public pension funds."

"If a continued aggressive portfolio shift in Q1 2015 is revealed in the GPIF’s portfolio announcement, the market may react negatively in the short term, capping USD/JPY upside risk."

"Nonetheless, we judge Japan-oriented flows, including JPY9trn of foreign investment by public pension funds, will remain JPY negative. We expect USD/JPY to trade between 122 and 125 in the near term, but after that, we expect USD/JPY to resume appreciating in the medium term."

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