Forex Flash: Japanese GPIF fund plans to diversify towards stocks – UBS

According to Research Analyst Gareth Berry at UBS, “Hedge funds based outside of Japan have been largely responsible for the three-month old rally in the USD/JPY. Indeed, we are frequently asked when Japanese real money might get involved and whether this could lead to another round of yen selling.”

It is therefore no surprise then that attention focused overnight on weekend comments by the President of Japan's Government Pension Investment Fund (GPIF). The fund plans to revisit the composition of its securities portfolio over the next 12 months, and may eventually diversify towards emerging market stocks.

Seasoned yen-watchers will have heard this story many times before, which partly explains why the USD/JPY did not flinch on the headlines. However, this diversification story now has greater resonance given the Abe-administration's ambition to boost inflation and weaken the yen. “Our analysis shows there is plenty scope for fresh outflows and, with total assets under management of about $1.2 trillion, even a small percentage adjustment could generate lots of additional yen selling.” Berry suggests.