Did Japan finally pick up an emergency hammer and smash the glass cover that says “Strengthen the yen here”? Japan's Finance Minister Katayama Satsuki created a real accident on Friday. Near the end of her regular press conference, she announced that the government will promote relevant policies to encourage large-scale pension funds to increase investment in Japanese domestic assets. She revealed few details, and did not directly mention the yen.
However, in a country like Japan where almost all policies, from economic growth plans to the Bank of Japan's interest rate hike arrangement, the highest-ranking Ministry of Finance officials suddenly threw out this news, indicating that Katayama Satsuki wants to preserve its unexpected effects, rather than interfering with the foreign exchange market by frequently using US debt asset reserves as speculative forces expect. The market also responded. The yen appreciated in the direction of 161 yen to the US dollar, and the price of domestic bonds in Japan also showed an upward trend.
According to policy makers from Japan's Ministry of Finance and even the Bank of Japan, the first thing that needs to be done to fix the yen is probably not to lend a “hand of intervention” again, but rather to push Japan's huge overseas pension assets back into domestic assets.
From April 28 to May 27, Japan's Ministry of Finance authorities spent a record 11.73 trillion yen (72.7 billion US dollars) to defend the yen, but since then, the yen rapidly depreciated to near its lowest level in 40 years, and the Japanese government's intervention at the level of 10 trillion yen came to nothing. The dollar broke 162 against the yen this week, which means that the yen is close to its weakest range since 1986. Wall Street financial giant Goldman Sachs raised the 12-month dollar/yen forecast point from 155 to 165. Essentially, it acknowledged that “historical undervaluation” did not mean bottoming out soon; the 200 yen point can be described as a major tail risk from “unimaginable” to a medium-term investment perspective.
The real policy signal released by the Japanese government is that the war to defend the yen may shift from short-term foreign exchange market price intervention to a more sustainable reallocation of the country's balance sheet. Even if only 2% to 5% of total assets are transferred back from overseas, mechanical estimates are equivalent to about 5.9 trillion to 14.7 trillion yen, which is comparable to the 11.73 trillion yen foreign exchange intervention invested by the Japanese authorities from April 28 to May 27; the difference is that direct intervention involves buying large amounts of yen over a period of time, and pension adjustments can form a more stable structural flow of capital by continuously reducing overseas asset purchases, increasing exchange rate hedging, and increasing local assets. However, according to the US and other important Western economies, the appreciation of the yen may not only reduce the profits of Japanese exporters and cause prices to rise in major consumer countries such as the US, but the Japanese Government Pension Investment Fund (GPIF) may also cause US debt and the global stock market to face sharp sell-off.
The return of Japanese pensions may become a “real lifesaver” for the yen: 293.6 trillion yen capital may reshape the exchange pricing of Japanese stocks and bonds
Despite this, the idea has been circulating in the market for several months: the government can promote government pension investment funds that manage 293.6 trillion yen (about 1.81 trillion US dollars) of assets, as well as other pension funds allocated according to their investment portfolios, to increase investment in domestic assets.
This is the smartest step to support the yen. For more than two years, we have been hearing this statement: the Bank of Japan must raise interest rates and close the interest rate gap with the US in order to push the yen to appreciate. However, after five consecutive interest rate hikes and the policy interest rate target rising to the highest level since 1995, the yen is now even weaker than during the period of negative interest rates. Over the years, this reality has been disconnected from fundamentals; what is really needed now is to change the market narrative. The same is true in South Korea: although borrowing costs are rising faster and at a higher level, they have failed to support the won.
At the same time, foreign exchange intervention is always only a short-term tool. Japan used scarce market liquidity to intervene during the May Golden Week holiday. This strategy had remarkable results in a short period of time, and the Japanese government seemed quite smart in the short term, but it did not really change the direction of the yen.
Promoting the adjustment and allocation of government pension investment funds is not only beneficial to the yen. A large-scale and continuously stable domestic buyer can also calm the volatile Japanese treasury bond market and suppress market concerns about Japan's exaggerated financial situation by stabilizing demand.
More importantly, at a time when Japan urgently needs huge investment to build AI computing power infrastructure and push semiconductor production capacity back to its peak, instead of continuing to export capital overseas, Japan should benefit from the returns it can obtain domestically.
The late Prime Minister Shinzo Abe pushed the government pension investment fund to increase overseas investment, which was the right policy for Japan, which was in a state of deflation at the time. At the time, the yield on Japan's 10-year treasury bonds was only 0.5%, and the Nikkei 225 index hovered around 15,000 points. The relevant adjustments prompted funds to be withdrawn from Japanese treasury bonds, which once accounted for two-thirds of its investment portfolio, to be invested in overseas bonds and domestic and foreign stocks. This strategy paid off: Thanks to long-term and prudent investment choices, the future state of Japan's pension system has improved dramatically.
Today, however, the situation is quite different. About half of the fund's funds are still allocated overseas, so it is entirely possible to bring some of it back to the country without sacrificing decentralization. After decades of near-zero interest rates, Japan has entered a “world of interest rates,” and domestic assets are now attractive enough to allow more capital to stay in the country; otherwise, Japanese savers may miss out on opportunities brought about by domestic economic recovery.
In the stock market, shareholder returns have risen sharply, corporate governance reforms have continued to advance, and the Nikkei Index has risen to about 70,000 points. The yield on Japanese treasury bonds may have fluctuated a lot, but don't ignore the “30-year high.” After the benchmark interest rate was suppressed for nearly 30 years, these are just a few bumps on the path to normalizing the financial environment and monetary policy. The absolute level of yield on Japanese treasury bonds is not surprising, and a moderate increase in government pension investment funds may even push the yield down slightly. However, the interest rate spread between Japanese treasury bonds and US treasury bonds has narrowed markedly. For a fund that pays pensions in yen, there is no sufficient reason to continue to go to overseas markets to pursue shrinking yields and dollar asset premiums while taking exchange rate risks.
Reducing overseas capital outflows, thereby easing the pressure on the yen, will only be a side benefit of this policy. But the government must act with caution. It's no secret that the current administration actually wants the yen to stay at a fairly weak level, and sees about 150 yen per dollar as an ideal range, because this level just encourages domestic investment called for by Prime Minister Takaichi Sanae. Officials will be wary of the market changing in the opposite direction too quickly to avoid disrupting corporate capital expenditure plans.
At present, it is unclear what Katayama Satsuki's specific plans are. Government pension investment funds are supervised by the Ministry of Health, Labor, and Welfare, and there have been no recent arrangements to rebalance the investment portfolio. Any attempt to push for an adjustment in its allocation is likely to be adversely described as the government interfering with pension savings and requiring investment of political capital equivalent to the 2014 portfolio rebalancing, while at the same time carrying out careful operations; prior to that year's adjustments, it went through a review process that took several months.
However, in terms of direction, this is a move that is in the interests of all parties. If Japan wants to build a post-deflationary industrial nation, then capital groups formed together within Japan and overseas should participate in sharing the rewards.
From exporting capital to investing in Japan: if the world's largest pension turns around, it may set off a new round of yen appreciation and global asset reallocation
As mentioned above, the real policy signal released by the Japanese government is that the war to defend the yen may shift from short-term foreign exchange market price intervention to a more sustainable reallocation of the country's balance sheet. As of the end of March 2026, the Government Pension Investment Fund (GPIF) managed assets of about 293.6 trillion yen (about 1.8 trillion US dollars). Domestic bonds, foreign bonds, domestic stocks, and foreign stocks each account for roughly a quarter, which means that about half of the funds are still allocated overseas. Even if only 2% to 5% of total assets were transferred back to the country from overseas, mechanical estimates would be equivalent to about 5.9 trillion to 14.7 trillion yen, which is comparable to the 11.73 trillion yen foreign exchange intervention invested by the Japanese authorities between April 28 and May 27.
The real difference, however, is that direct intervention is a one-time purchase of yen, and pension adjustments can form a more stable structural flow of capital by continuously reducing overseas asset purchases, increasing exchange rate hedging, and increasing domestic asset holdings.
This also explains why the market reacted quickly, yet still refuses to fully believe that this “trillion-dollar ace” will actually be played. After Katayama Satsuki made a statement, the yen once appreciated by about 0.6% to 161.44 yen to 1 US dollar, and the 10-year Japanese treasury bond yield fell 10 basis points to 2.775%, indicating that traders have begun to price the possibility of “the return of long-term domestic buyers.”
However, at present, the government has not disclosed the target allocation ratio, implementation schedule, whether funding is through the sale of overseas assets, or only adjustments to new cash flow, or whether to increase the foreign exchange hedging ratio. GPIF's primary responsibility is still to achieve long-term pension income goals with the minimum necessary risk, rather than acting as a foreign exchange intervention tool for the Ministry of Finance. Therefore, there are no specific weight adjustments or institutional procedures. Policy statements can only temporarily change the negative narrative that the yen continues to depreciate; it is not enough to completely reverse the trend.
If the policy is actually implemented, the impact on Japanese assets will be clearly divided. The yen will receive more reliable medium-term support than verbal intervention, and Japanese treasury bonds will reduce maturity premiums by adding stable purchases to mitigate the risk of long-term yield loss of control caused by expansionary fiscal policies; Japanese stocks as a whole will also benefit from the return of capital from local institutions, but the appreciation of the yen may weaken the conversion of overseas profits of exporting companies, so it is more beneficial to financial services, domestic consumption, capital expenditure, corporate governance reforms, and local companies that increase shareholder returns, rather than indiscriminately benefiting all Nikkei 225 index constituents.
The global market, too, cannot underestimate its spillover effects. If GPIF gradually reduces the allocation of foreign bonds and stocks, Japan's marginal demand for US treasury bonds and other overseas risk assets may decline, and push some yen carry trade financing transactions to close; this will undoubtedly put huge potential pressure on the world's long-term treasury bond yields and overvalued AI computing technology stock assets. But as long as the adjustment is completed gradually over many years, the main results are more likely to be a return in Japanese asset valuations, a moderate appreciation of the yen, and a marginal rebalance in global capital flows rather than a sharp liquidity shock. The most critical observation indicator is not the Minister of Finance's next speech, but whether GPIF will officially change the basic investment portfolio, foreign asset weight, and exchange rate hedging policy — only if capital actually flows back to Japan will this “trillion-dollar ace” change from a policy slogan to capital strength sufficient to change global asset pricing.