Since 2016, a Japanese publication for institutional investors, AL-IN, has periodical surveyed Japanese corporate pension funds to determine what products best serve them as they confront structural and market changes. The 2018 edition of the survey found pension funds preparing for a domestic economic downturn. Income gains were already slack and pension funds sought bond-related and low-liquidity assets to cover the shortfall. Since then, investment and financial markets have been defined by the U.S. Federal Reserve’s shift in monetary policy from tightening to easing and the worldwide economic freeze due to COVID-19. “Survey of Pension Product Supply and Demand 2020” asked how Japanese corporate pension funds have adjusted their product mix in response. Data was collected from 136 respondents.

Assumed interest rates and risk levels

Over the last several years, most Japanese pensions made gains on the back of a relatively strong market, until COVID-19 delivered an unprecedented and sudden blow to stock markets worldwide. Pension funds were not unscathed by the coronavirus crisis, but damage was mitigated by earlier reductions in portfolio stock ratios.

Overall, survey respondents indicate a volume zone of assumed interest rates of 2.1% – 2.5% and a volume zone of target interest rates of 0.5% above the assumed rate. The average assumed rate is 2.23% and the average target rate is 2.64%.

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