Japan’s national pension fund and its pension system in general face serious challenges that have recently been aggravated by an attempt to politicize the allocation of investments meant to secure the long-term welfare of the nation’s citizens.
Japanese Finance Minister Satsuki Katayama ignited a trading frenzy and heated debate on July 10, when she said, “We want to pursue measures to encourage households and pension funds to further invest in Japanese financial assets.”
As market speculation focused on potential buying of Japanese government bonds (JGBs), the yield on the benchmark 10-year JGB promptly fell from nearly 2.9% to just under 2.7%. The yen strengthened briefly against the dollar and the Japanese stock market advanced.
After the markets closed, Prime Minister Sanae Takaichi added that “it is important to pursue measures that encourage households and pension funds, including GPIF (Government Pension Investment Fund), to make further investments in Japanese financial assets so that the public can enjoy the benefits of Japan’s economic growth.”
Takaichi was already taking heat from fiscal conservatives for pushing a combination of fiscal stimulus and a reduction in the consumption tax. In addition to showing little concern about Japan’s high level of government debt, she and her finance minister are now advocating political interference in the management of GPIF, among the world’s largest pension funds with US$2 trillion under management.
GPIF president Kazuto Uchida pushed back on July 27, telling a meeting of experts at the Ministry of Health and Welfare that, as reported byBloomberg, the fund “will manage its assets solely in the long-term interest of its beneficiaries” – i.e., on the basis of its 5-year allocation plan, not short-term market [or political] conditions.
On August 7, GPIF announced that it had generated an 8.2% return in the three months to June. Positive returns by asset category were international equity 16.9%, Japanese equity 14.5% and international fixed income 3.1%. Japanese fixed income lost 1.1%. The politicians’ reaction to these results was not reported.
Among financial professionals who did not hide their unease with Katayama and Takaichi’s attempt to circumvent sound financial principles was Jun Arima, a veteran asset manager who, before his retirement in 2024, ran the GPIF’s Public Market Investment Department.
More than 30 years of experience managing funds in Seoul, London, New York and Tokyo have given him a broad perspective on Japan’s national pension fund. In interviews with Asia Times conducted by email and in person, Arima addressed the many issues looming over Japan’s pension system:
Asia Times: What is GPIF’s current asset allocation and how flexible is it?
Arima: The current (2025-2030) GPIF allocation rule base for possible overweight/underweight allowances is:
- Japanese Fixed Income: 25%, plus or minus 6%
- International Fixed Income: 25%, plus or minus 5%
- Japanese Equity: 25%, plus or minus 6%
- International Equity: 25%, plus or minus 6%
GPIF has been keeping the overweight/underweight deviation as small as possible since 2020. Allowable deviation limits are calculated mathematically, but the actual deviation is kept much smaller than the limit. In reality, GPIF is frequently re-balancing the portfolio to maintain the basic allocation pattern.
Whenever an overweight situation happens in one asset class, that asset is sold down to 25%, and at the same time, the other underweighted assets are bought up to 25% of the portfolio. The overall result last fiscal year was the following:
- Japanese Fixed Income: Net excess purchase 14,753 billion yen (ca. $92 billion)
- International Fixed Income: Net excess purchase 2,653 billion yen
- Japanese Equity: Net excess selling 10,693 billion yen
- International Equity: Net excess selling 4,201 billion yen
Clearly, without the government’s guidance, GPIF did purchase a significant amount of JGBs in a quiet manner.
Asia Times: Why is the system so inflexible?
Arima: The latest reported AUM (Assets under Management) of GPIF, as of June 30, 2026, was 317, 759.6 billion yen (around US$2 trillion).
Just 1% is $20 billion. So, whichever the asset class, it should be obvious that overweighting or underweighting by several % entails pretty serious risk.
In addition, GPIF manages about 90% of Japan’s public pension funds and more than 50% of the nation’s total pension assets. Suffering losses coming from bad bets could easily become a nationwide scandal.
Asia Times: Why does Katayama want to change the policy portfolio allocation?
Arima: It is clearly to cope with the expected selling of JGBs, which is ignited by the Takaichi administration’s economic plan.
Asia Times: Has Katayama specified the changes she would like GPIF to make?
Arima: An astute politician, she has never mentioned specific percentages. She did mention the five-year allocation program, which left the impression that she was hoping to see a new asset allocation pattern.
Asia Times: What’s wrong with that?
Arima: First of all, the timeframe mismatch between politics and pensions. Politicians look to the next election. Pension fund managers must look to the long term: 30 years or more from initial employment to retirement, and financial security after retirement.
I do believe that the general account budget and pension special account budget have to be strictly segregated. The time spans of the two budgets are so different.
Asia Times: What do you like and not like about the current system and how would you change it?
Arima: Before talking about changes in the asset allocation of GPIF, the government needs to seriously discuss how the holistic Japanese pension system could be improved. The system is not highly evaluated by leading pension consulting organizations.
Japan ranks 39th out of 52 countries in the Mercer CFA Institute Global Pension Index for 2025. Systems adequacy, sustainability, and integrity are assessed using more than 50 indicators. Japan received a C-grade.
Furthermore, it is clearly pointed out that Japan’s worst weakness is its poor corporate DC (Defined Contribution) program. Defined Contribution pensions account for a far smaller portion of the system in Japan than in other major countries – notably the US, Australia, the UK and Canada.
Asia Times: Why does this matter?
Arima: Japan has changed. Lifetime employment and steady economic growth no longer exist. People are waking up to the risks of corporate failure and bad government. They need to take control of their own financial future.
Asia Times: Which foreign pension system offers the best example for Japan?
Arima: Australia has a mandatory, egalitarian system. In 1992, from the beginning, they had auto-enrollment and escalated-contribution rules. In addition, there were very much risk-taking default investment plans that were offered to individuals.
The Australian pension story is a kind of accelerated history of the US DC pension system, but with redistribution from high tax-bracket to lower-income individuals. This is better suited to Japan.
Asia Times: What about alternative investments such as real estate, infrastructure and private equity? These are often advocated as a way to raise the return on pension fund investments.
Arima: The return on alternative investments is not always higher, the pie is always limited and GPIF, a newcomer, is not in any particularly advantageous position in the alternative investment world. This is why alternative investments account for less than 2% of GPIF’s overall portfolio, and why the maximum allowable limit is 5%.
Asia Times: Is it fair to say, then, that Takaichi and Katayama are trying to do what shouldn’t be done with GPIF, while not implementing the reform – the adoption of a comprehensive Defined Contribution corporate pension system – that is most urgently needed?
Arima: What I would like to say is that pension system reform is an ultra-long-term social planning effort that spans multiple generations. The vast funds of the GPIF that they are currently targeting are by no means low-hanging fruit for the current generation to eat up by definition.
And needless to say, it is not something politicians should use to achieve short-term goals. It would be extremely difficult to get politicians to recognize such an ultra-long-term challenge as their most pressing issue.
I believe the focal lengths are simply too different between the perspective of the next election and that of the livelihoods of future generations. So, there is just one thing I want to make clear: Please don’t irresponsibly say things that don’t need to be said!
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Japan = China in 20yrs. 30% over 65. Poor little chinee