December 9, 2015 / 6:21 AM / 4 years ago

INTERVIEW-Japan's GPIF says ready to hedge against currency volatility

* Prepared to minimise risk in foreign FX investments by hedging

* Third of assets denominated in foreign currencies as of Sept

* To start passive stock investments if investing directly allowed (Adds details, comments)

By Takashi Umekawa and Junko Fujita

TOKYO, Dec 9 (Reuters) - Japan’s trillion-dollar public pension fund is ready to hedge against the risk of fluctuations in the dollar and euro to minimise possible losses in its investments, President Takahiro Mitani said on Wednesday.

The Government Pension Investment Fund (GPIF) suffered a record 7.9 trillion yen ($64.34 billion) loss in the third quarter as financial market turmoil triggered by China’s economic slowdown battered global equities.

The loss was reported after GPIF last year made a historical shift by abandoning its stance to let domestic government bonds comprise the bulk of its portfolio in the wake of Prime Minister Shinzo Abe’s push to promote risk-taking and foster confidence in financial markets.

“Our portfolio is constructed based on the expectation that we do not need to hedge,” Mitani told Reuters.

“But that does not mean we are not taking any measures. If we are convinced that the yen is getting stronger, we would hedge against the move as much as we can.”

As of September, GPIF had 49 trillion yen worth of assets denominated in foreign currencies and that accounted for about one third of the fund’s entire assets.

Even though it is not possible to protect the fund’s entire foreign assets, GPIF is prepared to minimise risk by hedging if needed, he added.

Mitani also said his fund would start passive management of stocks if the government allows GPIF to make direct investments in stocks.

The government is debating whether or not to deregulate rules governing GPIF and allow direct investment in stocks.

“If we are to introduce active management of stocks, then we would need many analysts to analyse each stock, which cannot be done in the short term,” Mitani said.

Mitani also said the issue of how GPIF would exercise its voting rights needs to be discussed by the government if GPIF was to make active investments in stocks considering the scale of the money it manages.

$1 = 122.7900 yen Reporting by Takashi Umekawa and Junko Fujita; Editing by Jacqueline Wong

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