GPIF760 900 Japanese bonds welcome "stable market buying pressure"? Natixis said GPIF could buy up to an additional $76 billion, Deutsche Bank estimated $90 billion in funds inflow.

Japan's long-term government bonds are currently experiencing the most fierce sell-off in thirty years, and Japan's largest pension fund may become the long-awaited "stabilizer" for the market. According to the latest calculations from French Industrial Bank, the Japanese Government Pension Investment Fund (GPIF) can potentially purchase an additional 12.3 trillion yen (approximately $760 billion) of Japanese government bonds without changing the benchmark asset allocation framework. This potential buying interest comes as the yield on Japan's 10-year government bonds approaches 3% and the yield on 30-year government bonds breaks above 4% for the first time in history. French Industrial Bank estimates: From 26.9% to 31%, $760 billion of "institutional space" In a report, French Industrial Bank strategist Stephen Spratt points out that this estimation is based on a simple assumption: GPIF will gradually increase its domestic bond holdings from the current 26.9% in March to the maximum limit allowed under the current system of 31%. According to GPIF's current allocation rules, the benchmark weights for domestic bonds, domestic stocks, foreign bonds, and foreign stocks are all 25%; most asset classes can deviate from the benchmark by 6 percentage points, with a deviation limit of 5 percentage points for foreign bonds. This means that the maximum allocation for domestic bonds within the existing framework is exactly 31%. As of the end of March 2026, GPIF's assets under management reached 293.6 trillion yen (approximately $1.81 trillion), with an actual domestic bond allocation of 26.9%. French Industrial Bank strategist Stephen Spratt calculates in the latest report that if GPIF gradually increases its domestic bond holdings to the current upper limit of 31% without changing the benchmark asset allocation framework, the Japanese government bond market could receive up to an additional 12.3 trillion yen ($760 billion) in potential buying interest. French Industrial Bank further points out that the private sector needs to absorb approximately 60 trillion yen of additional bond issuance this fiscal year, and domestic demand is being questioned - as some Japanese life insurance companies have recently announced plans to shift their bond purchases from the long end of the yield curve. Against this backdrop, GPIF's potential buying interest is particularly important for providing marginal support to the bond market. Deutsche Bank's estimate: $440 billion "ceiling" and triple fund inflows Deutsche Bank's calculations are more aggressive. Strategist Tim Baker estimates that if GPIF and other public pension funds raise their allocations to domestic bonds and stocks to the upper limits allowed, the additional demand could exceed $90 billion and $160 billion respectively. Baker further points out that with the potential purchases from life insurance companies and Japanese retail investors, the total amount of domestic asset reallocation could reach $440 billion, accounting for about 10% of Japan's GDP. However, he emphasizes that this is the "ceiling for the next few years". With the Bank of Japan gradually reducing its bond purchases, investors are increasingly concerned about who will absorb the government's growing debt. The outlook for domestic demand is therefore becoming increasingly important. Recently, due to market concerns about Prime Minister Takashimaya Naosae's expansionary fiscal policy and expectations that the Bank of Japan will only gradually normalize its monetary policy, Japan's long-term government bonds have been under pressure. Policy game: from "rumor" to "denial" to "correction" Expectations for GPIF's allocation adjustments have undergone drastic swings over the past week. Phase one: Katsuyama's statement sparks market frenzy (July 10). Japanese Finance Minister Katsuyama Kogetsu stated that the government will introduce measures to push GPIF and other pension institutions to "significantly increase" their investments in Japanese domestic financial assets. The market quickly responded, with investors betting that tens of billions of dollars could flow into the Japanese market via GPIF, driving up the yen and Japanese government bond prices. Phase two: Insiders "deny" (July 13). According to Reuters, two Japanese government sources stated that the government currently does not have plans to immediately adjust GPIF's target asset allocation, but is considering pushing more funds into domestic assets within the existing allowable range. The first source admitted, "The market's reaction far exceeded our expectations." Phase three: Katsuyama reinforces stance (July 14). On Tuesday, Katsuyama further stated that, if necessary, adjustments will be made to GPIF's investment portfolio, emphasizing "we will ultimately move towards a growth strategy aimed at enhancing Japan's value." Minister of Health, Labor and Welfare Kenichi Ueno also pointed out that GPIF primarily pursues long-term returns based on the established basic investment portfolio and will only make adjustments when necessary. Several cabinet officials made statements on Tuesday, downplaying speculation in the market about GPIF's potential large-scale divestment of overseas assets while leaving policy space open for increasing the allocation of Japanese government bonds. Macro background: Japan's highest bond yield in 30 years and yen at 162 The intense market attention on discussions about GPIF's allocation is directly related to the pressure environment in Japan's bond and currency markets. In the Japanese bond market, on July 14, the yield on 10-year Japanese government bonds rose by 1.5 basis points to 2.800%, touching a near 30-year high of 2.900% during trading. The market is concerned about Prime Minister Takashimaya Naosae's expansionary fiscal policy on one hand, and expects a relatively slow normalization process for the Bank of Japan's monetary policy on the other, both of which are suppressing long-term bond performance. In the yen exchange rate, the yen against the dollar is holding above 162, near the lowest level in 40 years. Despite record-breaking intervention earlier this year when the yen first dropped below 160, the yen continues to hover around 162. Geopolitical risks, fiscal concerns, and significant interest rate differentials continue to put pressure on the yen. Regarding the Bank of Japan's policy, the market generally expects the Bank of Japan to maintain its policy rate at 1% at the meeting on July 31, but most analysts still expect another rate hike to 1.25% before the end of the year. "Institutional constraints on 'slow variables'" Overall, GPIF's potential increase in domestic asset allocation is a "slow variable" constrained by strict regulations: In the short term, it is unlikely that GPIF's strategic asset allocation framework will undergo fundamental changes before the next regular review in 2030. Any adjustment must be within the current range of 6 percentage points from the 25% benchmark, and must be based on maximizing investment returns rather than policy objectives. In the medium term, even if GPIF gradually increases its domestic bond allocation within the current permitted range, it could release potential buying interest of $760 billion to $900 billion. However, as warned by Deutsche Bank, the fundamental issue with Japanese government bonds lies in the imbalance of supply and demand - "Stable domestic sales supply and accelerating quantitative tightening have increased bond supply, while domestic investor demand has weakened, and global term premiums are rising". In the long term, Japan is experiencing a profound global interest rate "great reset" - Japan's implied long-term forward rate is about 5%, while the US is about 6%. Under this structural trend, GPIF's potential buying interest may provide marginal support, but it is difficult to reverse the fundamental direction of rising interest rates. As BlackRock Research pointed out in their latest report, "The increasingly crowded yen short position is worth close attention." As the configuration signal from GPIF, this "trillion-dollar whale," has not yet been clarified, the real test for the Japanese bond and currency markets may have just begun.