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Japanese Pension Funds Seek Safety in Gold
Wall Street Journal ^ | December 18, 2012, 4:11 a.m. ET | By KOSAKU NARIOKA

Posted on 12/19/2012 2:59:23 PM PST by DeaconBenjamin

A small number of pension funds in Japan have started to invest in gold for the first time.

Japanese pension funds invest mainly in domestic stocks and bonds. Until recently, none have looked to gold or other physical assets.

This strategy has produced meager returns at a time when bonds offer historically low yields and the stock market has stagnated.

Worse yet, when crises have roiled the markets, big funds have seen red. Japan's Government Pension Investment Fund lost 7.6% in the 2008 fiscal year, when the global financial crisis struck, and a less-painful 0.3% in the 2010 fiscal year, when the euro-zone debt crisis spooked markets.

Gold can protect portfolios from being damaged too badly in times of market stress. Low interest rates also justify holding non-yielding gold in place of cash.

"By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, the Okayama Metal & Machinery Pension Fund's chief investment officer. "Yields become stable if you put small amounts into as many types of holdings as possible."

Mitsubishi UFJ Trust and Banking Corporation said it has secured more than Y2 billion in investments from two pension funds for a gold fund it started in March.

Gold is also used as a hedge against inflation, which is becoming a bigger concern as global central banks buy ever-more bonds, market watchers say.

Higher inflation could drive up interest rates and erode the value of the Japanese government bonds in which pension funds have invested most of their money.

Japanese pension funds are tracking a trend that has already been seen in other developed markets. Gold's potential to offset inflation-linked losses has prompted some U.S. and European pension funds to buy small volumes.

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TOPICS: Business/Economy; Foreign Affairs; Government

1 posted on 12/19/2012 2:59:34 PM PST by DeaconBenjamin
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