But there is also thought of expanding defined contribution (DC) plans more generally. Current assets in Japan DC plans are only 7 trillion yen. This is just one-eightieth of DC plans in the U.S. I hope Mr. Shiozaki changes this. Discussion of DC plans is just getting started and should be part of overall welfare/pension reform. There are a lot of political obstacles. Social welfare reform is big [on the]agenda, but Abe intentionally avoided. Old people have vested interests, and Abe was focused on national security issues.
Question: How is Abe’s popularity faring?
Kikuchi: After the Cabinet reshuffle, Abe’s popularity went up. The appointment of five females to minister positions was quite popular. The stock market likes Shiozaki, who is overseeing the GPIF, as the most popular appointment. But ordinary people don’t care about the stock market that much.
Ms. [Yuko] Obuchi, the minister for trade and industries, is widely expected to be the first prime minister as a female and was a well-received appointment. She is the daughter of a former prime minister and has two children, also part of the reason why she is popular.
Question: Your outlook report for 2020 suggested you expect the Japanese government bond (JGB) yield to rise to 3%. Do you still believe that?
Kikuchi: JGB yields are quite difficult to forecast. I think 3% is most likely. The government wants to reach a primary budget balance to be cut in half next year and then go from deficit to surplus by 2020. If the government is successful, 3% is the most likely scenario and positive. If the Japanese government fails to fix the deficit and personal savings goes down, then Japan may look like Greece, and the 10-year bond rate goes up to 8%. Another risk scenario is Japan goes back to deflation and the rate stays at 0.5%. But overall I see it going toward 3% in a positive manner.
We want to thank Masatoshi Kikuchi for spending time with us and Mizuho for hosting a fantastic conference. For more insights from Mr. Kikuchi and some of the other strategists and economists we spoke with in Japan, please see our full roundtable here.
Important Risks Related to this Article
Information provided herein should not be considered tax advice. Investors seeking tax advice should consult an independent tax advisor. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Investments focused in Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance.