Japan GPIF to buy inflation-linked JGBs, join Canada OMERS on infrastructure: sources

TOKYO (Reuters) - Japan's Government Pension Investment Fund, the world's largest public pension fund, will start buying inflation-linked government debt from April and will join Canada's OMERS in investing in infrastructure projects abroad, people familiar with the process said on Friday.

The $1.2 trillion fund will buy more than 400 billion yen in Japanese government bonds whose principal increases with rises in the nation's consumer prices, the sources told Reuters on condition of anonymity.

In tying up with OMERS, one of Canada's largest pension plans, GPIF joins a big investor with experience in infrastructure and will also be joined by the government-owned Development Bank of Japan, the sources said.

A spokeswoman for OMERS in Toronto was not immediately reachable for comment.

GPIF carries great weight in financial markets because of its enormous size and its role as a leader of other Japanese public funds, which have total assets of more than $2 trillion.

The fund is under pressure to overhaul its portfolio, which is heavily weighted towards very low-yielding straight JGBs, as part of Prime Minister Shinzo Abe's drive to boost returns to help support Japan's burgeoning elderly population. Abe also wants to channel the nation's vast pools of financial assets towards riskier investments and more productive uses.

Earlier this month, GPIF president Takahiro Mitani told Reuters he had a strong interest in buying inflation-linked JGBs as an inflation hedge for the fund's portfolio but noted that the current amount is very low. The government plans to double its issuance of inflation-linked JGBs to 1.2 trillion yen next fiscal year as Abe pushes to break Japan free from 15 years of deflation, government sources said at the time.

GPIF is also considering further investment in alternative assets, such as private equity, as recently recommended by a government panel, one source said on Friday.

A government advisory panel has been looking for ways to have GPIF help revitalize Japan's capital markets, finding more productive uses for the country's $15 trillion in household assets, which are largely locked in very low-yielding bank accounts and Japanese government bonds.

(Reporting by Chikafumi Hodo and Takaya Yamaguchi; Additional reporting by Euan Rocha; Writing by William Mallard; Editing by Chizu Nomiyama)