During the volatility of US bonds, the market focuses on the $1.8 trillion "anchor" for the Japanese Government Pension Investment Fund (GPIF), stirring up the global market.

Amid drastic volatility in the Japanese government bond market and pressure on the yen, investors are turning their attention to a potential "key answer" - the Japanese Government Pension Investment Fund (GPIF), with assets totaling up to $1.8 trillion. As one of the largest pension funds in the world and an important indicator for Japanese institutional investors, market participants believe that an increase in GPIF's allocation to Japanese government bonds (JGBs) could help curb the recent surge in yields and provide some support for the yen. Analysts point out that this adjustment may involve GPIF reducing its allocation target for foreign bonds, especially US treasuries, in order to reduce the pressure of capital outflows and alleviate the selling pressure on the yen. GPIF has declined to comment on any potential adjustments. While the fund is scheduled to conduct its routine five-year asset allocation review by 2025, discussions have begun in the market following the "collapse" of the Japanese government bond market last week, raising the possibility of an early reevaluation of its investment portfolio structure, especially as signals of government intervention in the currency market to support the yen have emerged. Brent Donnelly, president of Spectra Markets and former forex trader, said: "The most direct solution is for GPIF to sell foreign bonds and buy Japanese government bonds. With GPIF currently holding around $400 billion in foreign bonds, adjusting the allocation could send a strong signal, initiating a theme of 'capital flowing back to Japan,' which would benefit both Japanese bonds and the yen." Discussions about adjustments to GPIF heated up last week. At that time, Japanese government bonds faced a selling wave, pushing ultra-long term yields to historic highs and causing chain impacts on global markets. The yen briefly fell to an 18-month low, but then saw a sharp rebound, with traders citing signs that the US may be cooperating with Japan to defend the weak yen. With the Bank of Japan gradually reducing bond purchases, the Japanese public pension fund has become an important "steady buyer" in the domestic government bond market in recent years. According to Bank of Japan data (adjusted for redemptions), the Japanese public pension fund has made net purchases of government bonds totaling around 28.2 trillion yen since the fourth quarter of 2022. In comparison, the pace of the Bank of Japan's bond purchases has slowed down, making it difficult to fully offset the supply pressure resulting from balance sheet reduction. GPIF usually conducts a "model portfolio" evaluation every five years. In its latest evaluation in 2025, the fund maintained a balanced structure of stocks and bonds, with each accounting for 50%, and continued to evenly allocate between Japanese and foreign assets: 25% for Japanese stocks, Japanese bonds, foreign stocks, and foreign bonds respectively. GPIF has also set a long-term target return rate of 1.9 percentage points above nominal wage growth. However, GPIF also noted that between routine evaluation cycles, the fund may reconsider its strategic allocation as needed. In 2014, GPIF announced a major asset allocation adjustment ahead of schedule following the Bank of Japan's expansion of quantitative easing. Under the pressure of Japan's aging population, GPIF has gradually increased its allocation to foreign assets over the past decade to improve long-term returns. This trend, coupled with the Bank of Japan's long-term loose policy, is believed to have exacerbated the long-term depreciation pressure on the yen. If GPIF were to reduce its allocation to foreign bonds in the future, its impact may not be limited to the Japanese market. As one of the major overseas investors in US treasuries, a considerable proportion of the foreign bonds held by GPIF are US treasuries. Data shows that as of the end of March 2025, 51.8% of GPIF's foreign bond holdings were US treasuries, the highest level since 2015, reflecting continued capital outflows driven by rising global yields and a weak yen. Stephen Spratt, rate strategist at Industrial Bank France, said: "This is not our base case, but it is certainly a risk that needs to be considered before the end of March. From a political perspective, this would help the government address two major issues: reducing the intensity of net purchases of foreign assets, alleviating pressure on the yen, while also supporting ultra-long Japanese bonds." However, market experts remain cautious about GPIF significantly increasing its holdings of Japanese government bonds, pointing out that there is a consensus between Japan and the US that "government investment institutions such as pension funds should engage in overseas investments for the purpose of risk-adjusted returns and diversification, rather than competitive devaluation." Currently, the holdings of government bonds by the Japanese public pension fund amount to around 67.6 trillion yen, still far below the Bank of Japan's holdings of 522.2 trillion yen as of the third quarter of 2025. However, strategists emphasize that even a minor adjustment or a clear signal could help stabilize investor sentiment in the highly volatile ultra-long government bond market. Vishnu Varathan, head of Asian macro research at Mizuho Securities, said: "If there is a clear 'bottoming force' in the government bond market, investors who are worried about 'catching falling knives' may regain confidence. Despite the market volatility, yields on Japanese bonds have become increasingly attractive."