Japan's corporate pension funds are expected to sell down a few trillion yen of shares in the coming years as the government pushes for reform of their struggling operations, and some appear to have already begun selling this month, market participants say.
This selling is putting additional strain on Japanese equities, which have been already hit by growing disappointment among foreign investors over a lack of economic reforms. And it runs counter to the aim of Prime Minister Shinzo Abe for more pension money to go towards the domestic share market. "Pension funds are hoping to sell stocks when the markets are good. Their selling is likely to increase in April," said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities.
From April 1, the Japanese government will introduce new measures to streamline employees' pension funds, which are defined benefit plans that form a part of Japan's gigantic and complicated pension system. There are about 560 employees' pension funds, collectively managing about 18 trillion yen ($174 billion) of financial assets, with 3.5 trillion yen in domestic stocks. Such funds are set up by a company or jointly by a group of companies to offer additional pensions for their employees to supplement public pensions.
But more than a decade of economic stagnation and deflation have meant paltry returns, leaving many funds underfunded. The government wants to clean up these funds, ordering them to get back in shape within five years or close shop. The Ministry of Welfare estimates that more than one-third of these funds are planning to either dissolve or return assets to the state, which means they have to cash out stocks they have, market players say. While the funds have five years to deal with the issue, market players expect many funds to act soon. In fact, some of these funds are already starting to take action towards eventual liquidation ahead of the new measures that take effect in April.