Markets may have jumped gun on hopes Japan's Shiozaki will reform GPIF

TOKYO (Reuters) - Investors may have jumped the gun when they bought Japanese stocks and sold the yen on news that a proponent of an overhaul of Japan's Government Pension Investment Fund (GPIF) will be in charge of the ministry that oversees the mammoth fund.

The market appeared to take the appointment of Yasuhisa Shiozaki as welfare minister, a portfolio that includes supervision of the country's pension pot, as a step that could lead to more buying of risk assets by the US$1.26 trillion (Sing$1.58 trillion) fund. Japanese shares hit a seven-month high on Wednesday, while the yen neared a six-year low against the dollar.

"When it comes to asset allocation, the market expectations may have gone ahead of the reality," said Nobuhiko Kuramochi, a strategist at Mizuho Securities.

While Shiozaki has said the GPIF's portfolio was too bond-centric, his emphasis has been mostly on strengthening the governance of the fund rather than its asset allocations.

In brief remarks late on Wednesday after being appointed to Abe's cabinet, Shiozaki said he wanted to proceed as quickly as possible with governance reform at the world's biggest pension fund. But he said he would leave the details of asset allocations "to the experts".

Some market players also question whether Shiozaki plans to go beyond market expectations in reducing bonds and raising risk assets such as stocks and foreign assets. Sources said last month that the GPIF will likely lower its weighting for Japanese government bonds to around 40 percent from a current 60 per cent target.

The GPIF has already reduced its bond holdings in recent months, as Prime Minister Shinzo Abe has been pushing GPIF to invest more in risk assets and less in domestic bonds in order to boost returns. Its allocation to domestic bonds fell to a record low of 51.9 per cent in June, well below the target of 60 percent and even below the minimum limit of 52 per cent, down from 53.4 per cent in March.

Market players said it was mostly short-term speculators who sold the yen and bought stocks in reaction to media headlines about the "reformist" minister, with real money investors looking for more details on his reform plans.

"It appears some short-term players were looking for a reason to jump into dollar buying and the impact is likely to be short-lived," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

The fund is finalising plans to boost the weighting of domestic stocks in its portfolio as early as this month.