Structural Changes in Japanese Long-term Capital Flows

Abstract

This chapter will review the recent structural changes in Japan’s longterm capital flows, and analyze the statistical relationship between current and long-term capital transactions. It will show that long-term capital outflows from Japan expanded rapidly after 1981, mainly as a result of the progressive liberalization of regulations on the acquisition of foreign securities by resident institutional investors. With increased international portfolio diversification, it is believed that the portfolio motive for acquiring foreign securities has abated, and we can no longer expect net long-term capital outflows in the future to correspond with the size of the expected current account surplus. This prediction receives support from the results of causality tests, which suggest that current transactions and long-term capital transactions (securities transactions, in particular) had no causal relationship in the 1980s.

This chapter is a revised and updated version of a paper presented at the 12th MOF-NBER Conference held in Tokyo on 5 March 1993. The original version was published in Japanese in the proceedings of the conference. The author has benefited from the useful comments of Professor Mitsuaki Okabe, participants of the MOF-NBER Conference, and seminar participants at Macquarie University, Sydney. He also gratefully acknowledges the capable research assistance of Yushi Yoshida.