Reversal! Rumors of a major shuffle in Japan's pension funds were refuted by insiders, causing a sharp depreciation of the Japanese yen in trading.

According to sources familiar with discussions within the Japanese government, Japan currently has no immediate plans to adjust the asset allocation of the national pension fund, but may consider directing more funds towards domestic assets within the existing allowable range. Japanese Finance Minister Taro Aso stated last Friday that the government will explore ways to encourage various pension funds, including the Government Pension Investment Fund (GPIF), the world's largest pension fund, to "significantly increase investments in Japanese financial assets." His comments at the time caused the Japanese yen and Japanese government bonds to rise, with market expectations that tens of trillions of dollars could flow into the Japanese market through GPIF. As of March this year, GPIF managed assets worth as much as 293.6 trillion yen (about $1.81 trillion). However, two government sources revealed that while the government is studying how to increase such investments within the existing benchmark range, this measure will not immediately trigger a revision of GPIF's mid-term targets. One source said, "The market's reaction far exceeded our expectations," while acknowledging that Taro Aso's remarks do not mean a change in asset allocation structure will occur. Due to sensitivity, both sources requested anonymity. As a result of this news, the yen depreciated by 0.4% during trading on Monday, reaching a low of 162.36 yen to the dollar; Japanese government bond futures also fell. At the time of writing, the dollar hovered near 162 yen, just a step away from its lowest level in forty years. Before Taro Aso's comments were released, a draft economic blueprint from the Japanese government sparked selling of the yen and bonds, as the market interpreted it as pressure from the dovish Prime Minister Takashi Imai's government on the central bank to delay rate hikes. Subsequently, the minister responsible for the draft was forced to admit that the wording would be modified to calm market sentiment. According to regulations, GPIF's investment operations must be entirely centered on the interests of pension beneficiaries and not be used to align with government policy directives in reallocating funds. Under the current medium-term management plan, GPIF's asset allocation for domestic bonds, foreign bonds, domestic stocks, and foreign stocks is 25% each. The target allocation for domestic bonds allows for a fluctuation of up to 6 percentage points. The first source did not rule out the possibility of further allocating GPIF funds to domestic bonds within the allowable range. However, he emphasized that investment decisions for pension funds must be cautious, and even adjustments within the allowable deviation range must have sufficient and convincing rationale. Takahide Kiuchi, chief economist at Nomura Comprehensive Research Institute, stated, "Even without a reconsideration of the basic portfolio, GPIF could increase domestic investments within the existing discretion range." He also pointed out that the government can guide GPIF in this direction. "With long-term interest rates rising, Japanese government bonds as safe assets have become relatively more attractive, with improved returns." The monitoring of GPIF is overseen by the Japanese Ministry of Health, Labour, and Welfare, which refused to comment when asked whether the government is considering adjusting GPIF's asset allocation. Chief Cabinet Secretary Kihara Minoru stated at a press conference on Monday, "GPIF reviews its policy portfolio every year, managing risks in line with market dynamics, and evaluating whether there have been significant changes in the investment environment assumed when the portfolio was established." He added, "From my understanding, if such changes require adjustments, the portfolio will be revised accordingly."