Japan Keeps Pension Funds In Euro Currency
With so many other countries wanting to get rid of their European assets, Japan has decided to hold onto its pension fund.Japan has one of the largest pension funds for its public sector. It is estimated to be the equivalent of ¥109 trillion or $1.4 trillion. These pension fund assets are all held as Euro bonds. Unlike other countries, Japan has stated it will not switch the currency of these bonds because of the debt crisis with the European Union. Currently at least 68% of the money in the Japanese Pension Investment Fund is located as euro currency bonds.
At the moment the position taken by the Japanese pension fund is quite unique. The problem within Europe is worsened as more countries sell any investments in the euro currency. This is an encouragement to the region that one of the largest trading countries, such as Japan, has decided to keep its pension fund in euro bonds. By doing so, Japan does not add to the debt situation in the area that seems to be spiralling out of control.
It is believed that the financial crisis in Europe will not affect the money invested as bonds for the pension fund. According to president of the fund, Mr. Takahiro Mitani,
"Since we make investments with a long-term perspective such as 10 to 20 years, we don't have to realize temporary book losses [in European bonds] as long as we expect the market to eventually return to normal over time".He believes that before the money was invested into Euro bonds, all of the long-term risks were already assessed. Mr. Mitani stated that there is still a chance that the Euro currency market can still bounce back to where it previously was. Mr. Mitani has stated that any sudden movement will be risky, unless he saw that there was a complete financial collapse from every country in the region.
Even though the Japanese pension funds remain in euro currency, Japanese insurance companies have already reduced their risk associated with doing business with the European Union. Countries such as Spain, Ireland, Portugal, Italy and Greece have lost financing to a total of ¥551 billion or $70 billion since September.
The Japanese pension fund will start to steadily pay-out in a couple of years as the generation of Japanese reach retirement age. There are plans for it to obtain higher investment returns by investing in equities by March 2012.
When asked about the possibility of Japan experiencing the same financial crisis, Takahiro Mitani was quite optimistic. Mr. Mitani stated that even though Japan has one of the worse financial situations of the first world countries, it will be awhile before it has to worry about experiencing the same problems with debt. He stated that the low-interest rates that Japan has is expected to continue for quite some time.