Japan’s $1.8tr giant freed by turmoil in global markets

The worst-ever start to a year for stock markets and oil's historic slump haven't deterred Japan's postal savings bank, which is preparing to shift more of its $1.8 trillion portfolio into equities and alternative assets.

Japan Post Bank Co. will start investing in shares directly within a year, Katsunori Sago, who oversees the portfolio, said Wednesday in an interview in Tokyo. Sago also said he wants to put "several trillion yen" into alternative assets such as private equity and hedge funds over the next five to 10 years.

The nation's biggest holder of deposits is seeking improved returns following its November listing as yields on Japanese government bonds, which make up the largest portion of its portfolio, hover near record lows. Yet investing in stocks has become more perilous since China's deepening eco- nomic slowdown fueled a worldwide equity and commodity rout and sent Japan into a bear market on Wednesday.

Shares of Tokyo-based Japan Post Bank fell below their initial public offering price for the first time on Wednesday before rebounding in morning trading on Thursday. The postal bank rose 2.1 percent to 1,460 yen at the lunch break, compared with 1,450 yen before its Nov. 4 listing. The benchmark Topix index gained 1.3 percent, paring the loss from its Aug. 10 high to 20 percent.

Asked whether Japanese equities are a buy now, Sago said it's "hard to say," particularly amid uncertainty over the direction of the yen. The postal bank's plan to directly invest in stocks echoes a similar move by the nation's biggest pension fund. Japan's health ministry, which oversees the Government Pension Investment Fund, is debating whether to change laws that would allow it to invest in equities in-house."We have interestrate risk and so holding equities gives us a reverse correlation," said Sago, 48, an executive vice president. "We can improve returns while at the same time gaining better balance."

Sago said we welcomes a proposal to increase the limit on deposits that customers can hold at the bank. As well as restrictions on lending to home buyers and businesses, regulations prevent Japan Post Bank from accepting more than 10 million yen in deposits from each of its customers. Despite resistance from banks, a government committee advising on the postal group's privatization process recommended in December that the cap be increased to 13 million yen. The government must now consider whether to change the law.

"It improves convenience," Sago said, adding that fears the change would result in an outflow of funds from other banks were unfounded. "I don't think it will make much difference" to the amount people deposit, he said. The postal bank will continue to trim its holdings of Japanese government bonds if interest rates remain low, Sago said. "We're a bank, so making stable profits is our biggest priority," he said. "Investing in JGBs is not enough in the current interest-rate environment."

Japan Post Bank is seeking to increase front-office staff to 130 from 100 to expand new investments, said Sago, a former vice chairman of Goldman Sachs Group Inc.'s Japan unit, who joined the company last June.

It's on track to increase assets in its so-called satellite portfolio to 60 trillion yen this year, ahead of a targeted date of March 2018, he said. The pool, which contains more diverse securities to boost returns, had 48 trillion yen in March 2015, he added. "We'll go over the target, but by how much will depend on what markets do," Sago said.