The Japanese government wants to use trillions of "whales" to stabilize the market! The finance minister calls on the largest pension fund to increase its holdings of domestic assets, but the reality is very "painful".

Japan's Finance Minister Kono Masatsugu stated at a regular press conference on Friday (July 10) that the government will implement relevant policies to encourage pension funds, including the Government Pension Investment Fund (GPIF), one of the world's largest pension funds, to increase their investments in Japanese financial assets. Kono Masatsugu's comments quickly triggered a chain reaction in the market: the yen strengthened against the US dollar from 162.43 to 161.29 at one point, a 0.7% increase; the yield on 10-year Japanese government bonds fell by about 10 basis points; and the Nikkei 225 index rose by 2.4%. Yugo Tsuboi, Chief Strategist at Daiwa Securities, bluntly stated that Kono's statement could drive a "triple rise" in the Japanese stock market, bond market, and yen. However, beneath the market euphoria, a more fundamental issue was being overlookedthis "trillion whale" managing 293.6 trillion yen (approximately $1.8 trillion) is unlikely to make significant asset allocation adjustments before 2030. Kono Masatsugu's "triple abacus": yen, bonds, and fiscal credibility Kono Masatsugu's statement was not an isolated event, but rather a "kill three birds with one stone" strategy under multiple pressures. The first pressure comes from the yen. Last week, the yen weakened against the US dollar to 162.84, reaching a nearly 40-year low since 1986. Kono's call for GPIF to increase holdings of domestic assets is essentially an attempt to provide structural support for the yen from the perspective of capital inflows. David Forrester, Senior Strategist at Credit Agricole, pointed out that Kono is addressing the structural issues of the weakening yen in a different waynot emphasizing the possibility of intervention but pushing to resolve deep contradictions related to loose monetary policy, concerns about fiscal sustainability, and persistent current account surpluses. The second pressure comes from Japanese bonds. Since the beginning of this year, the yield on 10-year Japanese government bonds has continually risen, approaching a 29-year high of 2.81% before Kono's statement on Friday. Concerns about the expansionary fiscal policy of the Suga government and doubts about potential political interference in monetary policy continue to drive bond sell-offs. Abhijit Surya, Macro Analyst at Capital Economics, pointed out that Kono's statement could help mitigate the recent surge in bond yields, but it is "by no means a panacea." The third pressure comes from fiscal credibility. Kono also promised in his statement to maintain market confidence by reducing the ratio of debt to GDP. Masahiro Ichikawa, Chief Market Strategist at Sumitomo Mitsui DS Asset Management, stated that a reduction in foreign stock and bond allocations would naturally ease downward pressure on the yen while tending to support the bond market. In order to dispel concerns about government intervention in monetary policy, Economic and Fiscal Policy Minister Futoshi Tokuhiro stated on Friday that the government "will never convey its views on the timing and extent of interest rate hikes or cuts to the Bank of Japan in advance." GPIF's "iron rule": a five-year review, continuous dominance of overseas assets While Kono's statement provoked a strong market reaction, the actual room for adjustment for GPIF is extremely limited. GPIF's asset allocation framework is subject to strict statutory periodic reviews. The fund conducts a strategic asset allocation review every five years, with the most recent review completed in 2025, determining the allocation plan for the fiscal years 2025 to 202925% each for Japanese stocks, foreign stocks, Japanese bonds, and foreign bonds. The next regular review is scheduled for 2030. GPIF's allocation principles and return targets are formulated by the Ministry of Health, Labour, and Welfare, adjusting them every five years based on factors such as the economy, interest rates, demographics, and global market impacts. The long-term performance of overseas assets continues to outperform domestic assets. Over the past decade, both stocks and fixed income assets overseas have consistently outperformed domestic assets. In the third quarter of 2025, GPIF's domestic stock returns were 11.0%, while overseas stock returns were 9.8%. In the 2020 review, GPIF increased its allocation to foreign bonds from 15% to 25% while reducing its allocation to domestic bonds from 35% to 25%a decision based on rational choice for maximizing returns. GPIF's statutory duty is to "maximize long-term returns for pension beneficiaries," and any increase in domestic investments must be based on investment considerations rather than policy goals. Koji Takeuchi, Senior Researcher at Itochu Economic Research Institute, stated, "Changing the strategic asset allocation faces very high obstacles. The investment portfolio is formulated within a legal framework and with reference to the opinions of external experts, making it difficult to make changes." A spokesperson for GPIF acknowledged Kono's remarks but declined to comment further. Historical precedents and global context: Government intervention is not without options Despite the high institutional barriers of GPIF, history shows that governments do have some leverage. In 2014, former Prime Minister Shinzo Abe successfully led GPIF to abandon its traditional investment stance of focusing on domestic government bonds by adjusting the fund's management structure, expanding the composition of its board members, and establishing full-time commissioners for the first time. This led to an increase in the allocation of domestic stocks from 12% to 25% and a decrease in the allocation of domestic bonds from 60% to 25%. The entire process from Abe's tenure to the actual adjustment of GPIF's asset allocation lasted nearly two years. Internationally, the government guiding pension funds to increase domestic investments is not uncommon. In 2024, the Canadian government lifted restrictions on pension funds holding more than 30% of investments in Canadian entities to promote large-scale investments in domestic entities. In May 2026, the Korea National Pension Corporation significantly increased its target allocation of domestic stocks from 14.9% to 20.8% by the end of 2026. These examples demonstrate that governments can influence pension funds through administrative means, but it usually requires a long time and a specific political window. Outlook: Easy to say slogans, difficult to change course Kono's statements are essentially carefully crafted policy expectations managementshe is trying to soothe the foreign exchange and bond markets by potentially redirecting this "trillion whale" without actually using valuable foreign reserves or bearing the political cost of intervention. However, this strategy faces two fundamental contradictions: firstly, GPIF's institutional inertia is much stronger than political slogans. It is almost impossible for GPIF to make major allocation adjustments before the next strategic review in 2030. Kono's statement is more of a "signal" than an "action." Secondly, the long-term yield advantage of overseas assets is hard to ignore. As long as the long-term returns of foreign stocks and bonds continue to outperform domestic assets, GPIF will find it difficult to make a significant shift towards domestic investments within the framework of its fiduciary responsibility. For the yen and Japanese bonds, Kono's statements provided a brief boost in sentiment, but they cannot change the fundamental structural contradictions. As Surya from Capital Economics stated, this is "by no means a panacea." The true shift of this trillion-dollar whale may have to wait until 2030and until then, the market will continue to fluctuate between expectations and reality. Market perspective: Discrepancy between short-term expectations and reality While Kono's statements have sparked strong market reactions, most analysts believe that GPIF is unlikely to make a real shift in the short term. Philip McNicholas, Asia Sovereign Strategist at Robeco in Singapore, stated that Kono's statements are beneficial for the yen and domestic assets overall, and if GPIF increases its allocation to domestic assets, it could further support the yield curve for maturities beyond 10 years. However, Surya from Capital Economics warned that GPIF cannot expand its balance sheet arbitrarily. The fund's portfolio is primarily focused on passive investments in domestic bonds, and shifting from stocks to bonds would incur significant financial costs. Even if the short-term pressure on the Japanese government bond market eases, concerns about the Suga government maintaining low interest rates through verbal intervention and the potential lagging of the central bank behind the situation could easily resurface.