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funds calm despite JGB jitters
By Barney Jopson, Financial Times
August 25, 2003
Japan's pension funds have remained a pool of
relative calm in recent weeks despite the volatility in Japan government
bond (JGB) prices.
Funds have been helped by equity gains that
have offset bond losses, as well the introduction of policies aimed at
diversifying their investment exposure across different asset classes.
Banks, by contrast, which are under the eye
of regulators and are highly sensitive to risk, have scrambled to sell
bonds and cut their exposure to the market - in the process, exacerbating
"Certainly pension funds are not happy
with falling JGB prices," said Tatsuo Mizutori, a director at Mercer
Investment Consulting. "But with the equity market rising, overall
they are in positive territory."
As bond prices have plummeted, first in a
rout in late June and then again in the past week, equities have climbed
and counterbalanced the pain.
"There is some selling to adjust JGB
positions, but no dramatic changes to asset allocations," Mr Mizutori
said. Investors focusing exclusively on JGBs could find reason to drop
bonds, but funds with diversified investment strategies found it easier to
accept losses, he said.
"Pension funds close their books in
March," one trust bank fund manager noted. "We are not even
halfway there at the moment, so there is not a great deal of worry."
In the retail sector, the rise in JGB yields
is likely to stimulate individual buying of government debt, said Takashi
Sakurazawa, general manager of financial products at Nikko Cordial.
The government began selling 10-year JGBs for
retail investors in March, but the three issues launched so far have had
interest rates close to their 0.05 per cent floor - and differ little from
the fixed-deposit rate available at banks.
With 10-year yields at their present level Mr
Sakurazawa says the next retail issue - with a coupon to be set in early
September - could have a rate of 0.4 or 0.5 per cent. "I get the
feeling that if the rate is set there a lot of retail buyers could
launched pre-packaged JGBs for retail investors to nurture a new source of
demand for sovereign debt.