Japanese pension fund switches to gold

Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies.

Initially, the fund aims to keep about 1.5 per cent of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”.

The move into a non-yielding asset comes as funds in the world’s second-biggest pension market are under increasing pressure to meet promised payments, as domestic interest rates remain rooted near zero. This year, the first of Japan’s baby boomers turn 65, becoming eligible for payouts.

Mr Kiguchi said the lack of yield was a concern for the fund’s investment committee, but he persuaded them that “from a very long-term point of view, gold may be one of the safe currencies”. He added that he had sold Australian dollars this month to meet his initial target allocation for gold for the fund, which has 20,000 members.

Mizuho Trust & Banking, a unit of Mizuho Financial Group, has begun to offer investment schemes allowing smaller pension funds to invest in gold.