GPIF's Repatriation Threatens Global Carry Trade Unwinding
TS Lombard and Banco Santander have warned that the Government Pension Investment Fund (GPIF) is on the verge of accelerating its repatriation of funds into Japanese domestic bonds, which could lead to a global carry trade unwinding.
The GPIF currently manages approximately $2 trillion in assets, making it the world's largest pension fund and one of the largest single foreign holders of U.S. Treasury securities, with holdings amounting to $1.1 trillion according to U.S. Treasury data.
TS Lombard notes that this structural capital repatriation will drive USD/JPY below 150, targeting a fair value range of 130-140, while the market has yet to fully price in the passive deleveraging risks associated with global carry trades.
Banco Santander estimates that GPIF could reduce its holdings of U.S. Treasury securities by up to $62 billion within the current policy framework, even without triggering a formal asset allocation review.