Japanese pension fund to shoulder costs of Bank of Japan's negative rate

TOKYO (Reuters) - Japan's Government Pension Investment Fund (GPIF), the world's largest pension fund, has decided to shoulder the costs charged on its deposits under the central bank's negative rate policy, sources familiar with the matter said on Monday.

GPIF entrusts its deposits to a trust bank arm of Mitsubishi Financial Group , which had been wearing the cost of a 0.1 percent charge the BOJ imposes on a portion of excess reserves parked with the central bank.

The Nikkei newspaper reported earlier that with GPIF's deposits piling up because of meager returns on its bond investments, the trust bank arm had requested the pension fund to pay the negative rate charge.

GPIF agreed to the request and will pay the interest on deposits mandated by the Bank of Japan's (BOJ) policy, partly to ease the burden on the trust bank, the newspaper reported.

The move underscores the challenge the BOJ faces in reflating the economy with ultra-low borrowing costs, which benefits companies that borrow but could discourage banks from lending due to shrinking margins.

Two sources familiar with the matter confirmed the report, telling Reuters the GPIF has decided to shoulder the costs estimated to reach several billions of yen per year.

A public relations official at GPIF declined to comment.

The move puts GPIF in line with other institutional investors, some of which had agreed to accept the cost of negative rates.

The BOJ says about 7 trillion yen ($62 billion) overseen by all trust banks are subject to the minus rate.

GPIF, which manages roughly 157 trillion of pension savings for Japanese nationals, posted a 2.97 percent return on its investment in the July-September quarter as global stocks rallied.

But its domestic bond portfolio returned just 0.16 percent in the quarter, as the BOJ kept government bond yields around zero percent under its ultra-easy monetary policy.

The BOJ has been dropping subtle, yet intentional, hints it could edge away from crisis-mode stimulus earlier than expected, sources say, although any such action would be some time away with inflation distant from its 2 percent goal.

Many analysts expect the central bank to keep monetary settings unchanged at its rate review this week.

As part of an effort to push down borrowing costs and reflate the economy, the BOJ adopted negative rates in January last year.

Nine months later, it revamped its policy framework to one guiding short-term rates at 0.1 percent and the 10-year government bond yield around zero percent.

($1 = 112.6600 yen)

(Reporting by Leika Kihara; Editing by Peter Cooney and Eric Meijer)