Japan's financial power

Mikuni, Akio

Various bank asset rankings indicate Japanese banks almost monopolize the top five banks in the world. This paper explores why this phenomena appears to be of a temporary nature. Firstly, the thrust of long-term capital outflow comes from acquisitions of long dated bonds, especially US Treasury bonds, triggered by rapid expansion of current surplus. Secondly, Japanese banks' assets have increased due to two reasons. The sharp yen appreciation in the past four years has doubled their dollar translated domestic assets. In addition, their overseas assets have risen sharply from less than 10% of the total assets to 40% or more in the past six years. Japan's somewhat exaggerated financial power is likely to disappear in the not too distant future as the trade imbalance should be corrected by one way or another. However, aggressive Japanese investments in R&D efforts as well as production capacities will continue to improve the terms of international trade in Japan's favor. Furthermore, Japan's overseas investments will be paid back only if they will increase positively productivities in the local markets. Japan's financial power will become more invisible and will depend upon its contributions to the world economy, or supports by overseas consumers and investors.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 23
Published Here
February 7, 2011