Japanese Minister: Don't Rely on Pensions in Wake of Disaster

(March 22, 2011) — Economics minister Kaoru Yosano has said that Japan should not use pension funds for disaster relief.

“It is undesirable to use pension funds as a source of money for disaster relief, as it would destroy the basic principle of a pension fund,” Yosano told reporters after a cabinet meeting on Tuesday.

Japan’s debt is set to reach 210% of gross domestic product in 2012, representing the highest level of debt among countries tracked by the Organization for Economic Cooperation and Development.

Additionally, in an interview with Reuters, Yosana said that Japanese markets are still sound and do not require joint G7 currency intervention or government purchases of shares. The earthquake and ongoing nuclear crisis in Japan has driven investors away from equities, toward safer cash and government bonds, but Yosano quelled fears about the volatility of the nation’s markets. “I don’t think stock and currency markets are in a state of turmoil,” Yosano told Reuters. “We would like to get psychological support from the G7,” he said.

Many investment consultants feel the Japanese equities will continue their downward spiral unless major fiscal reforms and policy changes occur. In the mid 1990s, Japanese equities were at their peak of attractiveness, comprising nearly 50% of the world equity market. Today, that percentage is down to around 10%, and it will likely continue its downward trend following the crisis in the region, fueling the potential implosion of Japan’s economy caused by an aging population and rising fiscal deficits, according to Matt Stroud, head of strategy and portfolio construction at Towers Watson. “Japan really needs fiscal reforms, and the recent catastrophe could be the impetus the country needs to achieve major policy changes to foster rising confidence in the Japanese economy,” he told aiCIO. “When the long-term policy outlook for Japan improves, it will be time to take a fresh look at Japan.”

Investment consultants also note that the situation in Japan speaks to the value of active equity managers, who seek to make decisions based on their assessment and analysis of events. “There are a couple of ways you could look at the crisis in Japan,” notes Tim Barron, president and CEO of Rogerscasey. “Investors could view the situation in Japan as having areas of opportunity or they could choose to stay out of the way — people sometimes run from volatility and sometimes they embrace it,” he says. “Our position is to help clients select active managers who get paid to make those kind of decisions in regards to owning markets like Japan.”