The national public pension fund, the world's largest, will sell about ¥4 trillion in assets this fiscal year to fund rising payouts as the population ages.

That follows asset sales of ¥720 billion, all in Japanese bonds, in the fiscal year that ended in March, Takahiro Mitani, president of the Government Pension Investment Fund, said Thursday.

"Insurance premiums rise little by little every year, but (they aren't) catching up with the increase in payouts," said Mitani, a former executive director at the Bank of Japan.

The fund manages workers' retirement funds in the most rapidly aging population among the Group of Seven nations. The first of the baby boomers will turn 65 in 2012, making them eligible for pension payments and straining the public coffers.

Japanese government bonds have returned 2.8 percent this year, according to an index compiled by Bank of America Corp.'s Merrill Lynch unit. In contrast, the Nikkei 225 stock average has lost 14 percent, the second-worst performer after China in the world's 30 biggest bourses, Bloomberg data show. Bonds are the most suitable asset to sell at this moment, Mitani said, without elaborating on what assets would comprise the total sale amount.

"The ¥4 trillion figure exceeds my estimate of about ¥3 trillion," said Takahiro Tsuchiya, a strategist at Daiwa Institute of Research Ltd. "Given bond yields have fallen this much, the fund is more likely to sell domestic bonds, and I don't think they will sell stocks at this moment."

JGBs accounted for 71 percent of the government fund's ¥117 trillion in assets as of June 30, the fund's statements indicate. Domestic stocks accounted for 11 percent.

People aged at least 65 accounted for 22.2 percent of the population as of the end of last year, the highest among the G7 nations, data compiled by Bloomberg show. That compares with 12 percent in 1990. About 8 million, or 6 percent of the population, were born between 1947 and 1949, regarded as the baby boomer generation, government data indicate.

Japan's 10-year bond yields fell to a seven-year low of 0.895 percent on Aug. 25. Yields have surged since then on speculation a government led by Ichiro Ozawa would sell more debt to fund spending programs.

Ozawa, who heads the ruling party's largest faction, said last week he will challenge Prime Minister Naoto Kan at the Democratic Party of Japan's Sept. 14 presidential election. He has pledged to double a monthly child care allowance and extend the period of subsidies for energy-efficient household appliances. The winner is assured of being prime minister as the DPJ controls the Lower House.

"I'm very concerned about Japan's fiscal condition, but I don't think bond yields will surge to 2 or 3 percent soon," Mitani, 61, said. "If the government takes no action, there's no doubt that the nation's finances will become unbalanced sometime in the future."