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Key day for GPIF prospects as Japan reshuffles cabinet

FXStreet (Bali) - According to Japanese press, Japan's cabinet reshuffle will take place at 14.00 local time (6 GMT), with most of the focus on who will be names the next Minister of Health, Welfare, and Labor, responsible to supervise the Government Pension Investment Fund (GPIF).

From Nomura

"Kyodo and other local media report that, the Deputy Policy Chief of the LDP, Mr. Shiozaki, will be named as the next Minister of Health, Welfare, and Labor(unconfirmed). The Minister of Health, Welfare, and Labor supervises the Government Pension Investment Fund (GPIF) and thus, the appointment is important for the GPIF reform."

"The Deputy Policy Chief, Mr. Shiozaki has been driving discussions on the GPIF's reform, and is showing a positive stance on the GPIF's portfolio allocation and governance reform. Thus, his appointment as Minister of Health, Welfare, and Labor will be regarded as positive for GPIF reform."

"Mr. Shiozaki said that the GPIF should determine its new basic portfolio and investment destination itself, on 6 August (Bloomberg). The investment committee of the GPIF has already started discussions on the new basic portfolio since 10 July, under the new chairman, Mr. Yonezawa, who has also served as one of the members of the pension fund reform panel."

"The GPIF is very likely to lower its domestic bond share target to around 40%, while increasing its domestic equity share to 20% or higher from 12% soon (see “Outlook for asset shift at the GPIF and other public pension funds”, 16 July 2014)."

"The GPIF portfolio reform is making progress on achieving a more flexible portfolio allocation, as proposed by the LDP. Thus, Mr. Shiozaki is unlikely to intervene in the decision on the new target portfolio, likely in September. Nonetheless, we think his appointment will suggest the strong will to continue reforming public pension fund portfolio management."

"Mr. Shiozaki could influence labor market reform, if he is nominated as the Minister of Health, Welfare, and Labor. Labor market reform is regarded as one of the most important policies for the third arrow of Abenomics, and his appointment could boost market expectations for progress on the reform. In addition, Mr. Nishikawa, who has been involved in negotiations on the Trans Pacific Partnership (TPP) from the LDP side, is reported to be named as the next Minister of Agriculture."

"This appointment could be positive for TPP negotiations, which is also regarded as an important policy agenda for boosting Japanese mid-term growth. Thus, the cabinet reshuffle scheduled for tomorrow could boost market expectations for a growth strategy, on top of GPIF reform expectations."

"USD/JPY has been trading strongly, thanks to expectations of US rate hikes, and Japanese political developments will encourage JPY weakness. "

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