Santander says GPIF can sell up to $62 billion in US Treasuries without policy adjustments

Santander Bank analysts have pointed out that Japan's Government Pension Investment Fund (GPIF) could sell up to 62 billion USD of U.S. Treasury bonds without the need to make a formal adjustment to its asset allocation policy. Last month, the GPIF management team held a relatively rare meeting, leading to widespread market speculation that this 2 trillion USD asset management giant is considering reducing the share of foreign bonds and increasing the allocation to Japanese domestic bonds.Kenichiro Ueno, Minister of Health, Labour and Welfare of Japan, who oversees the fund, stated on Tuesday that relevant officials are still studying whether it is necessary to review the asset allocation. However, Antonio Villarroya and his team at Santander Bank believe that even before a formal review is initiated, the current policy already provides fund managers with sufficient room to operate, allowing them to significantly reduce their exposure to overseas bonds, in which U.S. Treasury bonds face the highest risk of being reduced.In a report submitted to clients, Villarroya and his team noted: “Given the inherent flexibility of the strategic allocation range, GPIF can begin to cut its foreign bond holdings within the next few months, without needing to wait for the official results of the strategic asset allocation review.” They further stated that if the Bank of Japan successfully reverses the depreciation trend of the yen through consecutive interest rate hikes, the likelihood of GPIF reducing its U.S. Treasury bond holdings will increase even further.