Tags: Japanese | Pension | Funds | Gold

WSJ: Japanese Pension Funds Seek Safety in Gold

Tuesday, 18 Dec 2012 01:04 PM

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Japanese pension funds have begun investing in gold to shield themselves from homegrown and overseas market risks, The Wall Street Journal reported.

Global economic uncertainty and roiling markets are prompting Japanese pension funds, which traditionally invest in domestic stocks and bonds, to delve into gold, an attractive hedge against volatility.

"By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, chief investment officer at the Okayama Metal & Machinery Pension Fund, which has taken up small gold positions, the Journal reported. "Yields become stable if you put small amounts into as many types of holdings as possible."

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Of the fund's 40 billion yen ($476 million) in assets, the fund has invested around about 500 million yen in gold, Kiguchi added.

Currency risks are making gold more attractive as well.

The U.S. Federal Reserve has taken steps to stimulate the U.S. economy via rate cuts and trillions of dollars in liquidity injections to avoid deflationary decline and as a result, the greenback has weakened against other major currencies.

Meanwhile, the yen has been sliding now that the leader of Japan's Liberal Democratic leader party, Shinzo Abe, is set to become the country's next prime minister and will try to follow up on past calls for the Bank of Japan to ramp up monetary easing programs of its own, possibly on an open-ended basis similar to the Federal Reserve.

Weaker currencies often fuel inflationary fears, a cocktail for rising gold prices especially when applying to safe-haven currencies such as the U.S. dollar and the yen.

"Responding to inflation is becoming one issue," said Hiroaki Nakaoka, sales manager for SPDR ETF Japan at State Street Global Advisors (Japan) Co., the Journal added.

Gold, meanwhile, is poised to see a pickup in seasonal demand, experts said.

While prices have slumped recently thanks to budgetary concerns in the U.S. that have fueled some safe-haven dollar demand, the proximity of the Chinese New Year in February will herald in a ramp-up in physical demand for the yellow metal.

"We are entering a period of seasonally strong demand from China, and this can support gold prices between now and the beginning of the Chinese New Year in February," said Nic Brown, an analyst at Natixis, a global asset management firm, according to Reuters.

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