When the euro debt crisis shook Europe from 2010 to 2012 and many investors sold their holdings in Southern Europe, Japan’s public pension fund announced that it would keep its euro bonds. The decision says a lot about how the Government Pension Investment Fund (GPIF), the largest pension fund in the world, thinks about risk: it invests for decades, not quarters. This article explains how GPIF invests abroad, how its mix of assets has changed since then and how it handles currency risk.
What GPIF Is
GPIF was established in April 2006 to manage the reserves of Japan’s two public pension schemes, the National Pension and the Employees’ Pension Insurance. Contributions from workers and employers pay most current pensions directly; the reserves are a buffer for the decades in which Japan’s aging population will draw more than it pays in. GPIF’s assets amount to nearly 300 trillion yen, more than any other pension fund.
The fund is supervised by the Ministry of Health, Labour and Welfare, which sets the required return, and since 2017 it has been governed by a Board of Governors. Almost all of its money is invested by external asset managers selected by GPIF, and most of it passively, by tracking market indexes. How the pension system itself works, from contributions to benefit levels, is described in our article on Japan’s public pension system.
The Euro Crisis: Holding On
In the euro crisis, Greece, Ireland, Portugal, Spain and Italy faced soaring borrowing costs, and Greece, Ireland and Portugal needed international rescue programs. Many banks and insurers around the world, including Japanese life insurers, cut their exposure to these countries.
GPIF took a different line. Its president at the time, Takahiro Mitani, a former Bank of Japan official who led the fund from 2010 to 2016, explained that the fund invests with a horizon of 10 to 20 years and therefore did not need to lock in temporary losses on European bonds, as long as markets could be expected to recover. A sale, he argued, would only make sense if the whole region collapsed. The Japanese government sent a similar signal: in January 2011 the Ministry of Finance bought a share of the first bond issued by the European Financial Stability Facility, the eurozone’s rescue fund, using Japan’s foreign exchange reserves.
At the time foreign bonds were only a small part of GPIF’s portfolio. Most of its money was in Japanese government bonds, so the euro holdings were a limited risk for the fund, but its decision mattered to markets because of the fund’s size and its reputation as a cautious investor.
How the Asset Mix Has Changed
GPIF invests according to a “policy portfolio,” a target allocation reviewed with each five-year medium-term plan. The shift since the euro crisis has been dramatic:
| Asset class | 2006 | October 2014 | April 2020 and April 2025 |
|---|---|---|---|
| Domestic bonds | 67% | 35% | 25% |
| Domestic stocks | 11% | 25% | 25% |
| Foreign bonds | 8% | 15% | 25% |
| Foreign stocks | 9% | 25% | 25% |
| Short-term assets | 5% | – | – |
The 2014 reform, part of the economic policy of Prime Minister Shinzo Abe, moved the fund away from low-yielding Japanese government bonds and into stocks. The 2020 portfolio set an equal 25 percent weight for each of the four asset classes, and the board kept it unchanged for the fifth medium-term plan that began on April 1, 2025. Around each target there is a permitted range; when markets move the weights outside these ranges, GPIF rebalances by selling what has risen and buying what has fallen.
How GPIF Invests in Foreign Bonds
Benchmark and Currencies
The foreign bond portfolio follows a global government bond index that excludes Japan. U.S. Treasuries make up the largest share, followed by euro-area government bonds from countries such as France, Italy, Germany and Spain, and smaller weights in British, Canadian and Australian debt. The euro is therefore the second-largest currency in GPIF’s bond holdings after the dollar.
Currency Risk
Holding foreign bonds means taking on currency risk. When the yen strengthens, as it did in 2011 and 2012, the value of foreign assets in yen falls; when it weakens, as in 2022 to 2024, GPIF reports large currency gains. Most of the foreign holdings are not hedged. Since the 2020 portfolio, foreign bonds whose currency risk is fully hedged into yen are counted as part of the domestic bond allocation, because their returns behave much like yen bonds.
Why Foreign Assets Make Sense for Japan
Pension benefits are paid in yen, but a fund that holds only Japanese assets depends entirely on one economy that is shrinking in population. Foreign bonds and stocks spread that risk and give the fund a share in growth elsewhere. They also act as a partial hedge: if the yen falls and import prices rise, the yen value of foreign assets goes up.
Results and Volatility
With half of its assets in stocks, GPIF’s annual results swing widely. In fiscal 2020, as markets recovered from the pandemic, it earned a record of about 37.8 trillion yen; in weaker quarters it has reported losses of several trillion yen. The fund stresses that only its long-term average return matters, measured against the target set by the health ministry.
ESG and Stewardship
GPIF signed the UN-backed Principles for Responsible Investment in 2015 and in 2017 selected its first environmental, social and governance (ESG) indexes for Japanese stocks. As a universal owner that holds a slice of almost every large company, it argues that long-term problems such as climate change affect its whole portfolio, and it asks its asset managers to engage with companies on governance.
Leadership
Since April 1, 2025, GPIF has been led by President Kazuto Uchida, a former economist at Mitsubishi UFJ Financial Group, who succeeded Masataka Miyazono. Earlier presidents included Takahiro Mitani (2010–2016) and Norihiro Takahashi (2016–2020).
Frequently Asked Questions
Did Japan’s pension fund sell its euro bonds during the debt crisis?
No. GPIF kept its euro bonds, arguing that as a long-term investor it did not need to realize temporary losses.
How much of GPIF’s money is invested abroad?
Under the policy portfolio, half: 25 percent in foreign bonds and 25 percent in foreign stocks, within permitted ranges.
Who manages GPIF’s investments?
Mainly external asset managers selected by GPIF, most of them tracking market indexes. GPIF’s own staff manage part of the domestic bond portfolio.
Is GPIF the largest pension fund in the world?
Yes. With assets of nearly 300 trillion yen it is regularly ranked as the largest pension fund in the world, several times the size of the biggest U.S. public pension plan, CalPERS.
