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A report has been officially released by the Japanese Government Investment Fund stating that the Japan Pension Fund suffered major losses during the third yearly quarter, marking one of the biggest decreases since the country’s major economic crisis of 2008.
The largest Government Pension Investment Fund that Japan currently has been roughly around 135 trillion yen or 1.1 trillion dollars. This massive fund was created in order to support the increased number of Japanese people who have retired due to either age or other causes.
Following an approach revolving around higher risk intake than other years, proposed by the Japanese Prime Minister, Shinzo Abe. This approach was made in order to boost the fund’s growth in retaliation to the steady increase in Japanese retirees as well as boost confidence from an economic point of view towards neighboring foreign countries.
Unfortunately, this confidence was a bit ill-timed, as the Chinese economy slowed down to almost a halt due to its investigations towards several brokerages across the country. Because of this, many investors had a wary approach when deciding to invest funds into various stocks, eventually making the pension fund of Japan lose over 5.6% of its total fund, almost 64 billion dollars.
This decrease of the fund is seen by officials as something that will not progress through the following years, and in order to further consolidate this, the Pension Fund as a whole has slowly started to partake in a process called currency hedging.
In layman terms, currency hedging is used to circumvent currency fluctuations in the market by forming a financial contract which locks down on a specific currency exchange rate. This exchange rate will be used as the contract will still be in effect, disregarding the highs and lows of a certain currency.
This safety precaution is considered to be one of the best when attempting to quell major losses due to unexpected fluctuations in exchange rates and is in a small amount against the previous risk strategy that the Japanese government previously upheld.
If this currency hedging strategy will boost the fund’s increase in the following months of the fourth yearly quarter which is about to finish at the end of this December is only speculative at this point. Taking into account that with the coming holiday season is approaching fast, the possibility of at least a lower loss will be suffered by the fund as a whole is likely.
The fact that the Japan Pension Fund suffered major losses during the third yearly quarter will still be a grim news, even if the fund will balance itself out in the coming months. Because of the threat of foreign economies not performing at the expected levels in order to boost the fund, another risk taking policy will have a lower chance of coming into effect in 2016.