Japan’s Government Pension Investment Fund (GPIF), the world’s largest retirement fund, is taking a big step by selecting domestic alternative asset funds on its own. They will invest ¥50 billion ($340 million)—¥40 billion for infrastructure like data centres and ¥10 billion for real estate. Although this change is small compared to GPIF’s total assets of ¥260 trillion, it gives the fund more control over its investments. This shift aims to diversify into higher-yield assets that are less impacted by changes in stock and bond markets. While alternative investments can be risky due to potential low liquidity and market cycles, they are becoming increasingly popular around the globe. GPIF currently limits its alternative investments to 5%, but right now, they hold only 1.6%.

Seeking Yield in Real Assets

By directly investing in Japanese alternative funds, GPIF shows a growing demand for yield in real assets. Even though the investment is small compared to their total assets, it could boost the domestic infrastructure and real estate markets. It also indicates that Japan’s institutional investors are starting to follow the global trend in alternative investments. This move by GPIF shouldn’t be seen as a large cash influx. Instead, it serves as a strong long-term signal for Japanese real assets. The initial investment of ¥50 billion is small, but it supports confidence in domestic infrastructure and real estate. Traders should prepare for a change in sentiment and expect more investments from other institutions. This news also strengthens the case for a positive outlook on the Japanese real estate investment trust (REIT) market. With Tokyo’s Grade-A office vacancy rate stabilizing at 6.1% in the second quarter of 2025—after peaking in late 2024—GPIF’s timing seems smart. It may be a good idea to buy call options on the TSE REIT Index, expecting that this institutional interest will draw in more capital and benefit the entire sector.

Rising Demand for Artificial Intelligence Capacity

The focus on infrastructure, particularly data centers, taps into the ongoing global hunger for artificial intelligence capacity. Japanese construction and engineering companies are poised to gain from this long-term trend, which has already led to a 12% increase in their sector index since early 2025. We can invest in this area by purchasing call options on a selection of stocks that build and equip these high-tech facilities. Although this investment is currently domestic, the broader trend shows GPIF moving its alternative asset allocation closer to its 5% cap from 1.6%. This could mean a potential ¥8 trillion shift over time, suggesting a long-term commitment to Japanese assets, which may gently support the yen. After the yen’s historic weakness in 2023-2024, this could lead to a gradual strengthening, making it wise to reduce short-yen positions. This development is unlikely to cause significant short-term market fluctuations. Instead, it lays a solid foundation for certain sectors. The Nikkei Volatility Index has already dropped to 18 this quarter, indicating a calmer market than last year. We should think about selling out-of-the-money puts on relevant real estate and construction ETFs, using this institutional support to confidently collect premiums. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now