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Economy in Brief

Japan's Net Investment Position Eased in 2005 as the Value of Foreign Investment Surged
by Carol Stone May 26, 2006

The Bank of Japan today reported on Japan's international investment position for year-end 2005. Total assets abroad stood at ¥506.2 trillion, up 16.7% from the end of 2004. All of the major asset categories climbed by significant amounts, such as direct investment abroad, which was up 18.2%, and holdings of equity securities, which rose 26.9%.

We find it interesting that both of the equity components, direct investment and equity securities holdings, constitute only moderate amounts of total assets abroad. Equities were 5.6% of total international assets at the end of 1995; while they have increased, they still constitute just 9.5% of Japanese investors' holdings abroad. Direct investment has ranged between 8.4% and 10.4% of total assets over the 11-year history of these data; at the end of 2005, this item was 9% of the total. It was also right at 9% of Japanese GDP for the year. In contrast, US direct ownership interests abroad constituted 26.2% of total US assets abroad and 20.2% of US GDP in 2004 (latest available).

Foreign investors have interests in Japan, of course, and at the end of 2005, these totaled ¥325.9 trillion, up a sizable 31.2% from year-end 2004. The gain was concentrated in equity securities, which increased 71.6%, helped by the 40.2% surge in Japanese stock prices (measured by the Nikkei 225). Foreign direct investment in Japan rose 17.9%, but it is a much smaller amount, only ¥11.9 billion.

With the big gain in the value of liabilities to foreigners, Japan's net investment position actually decreased in 2005, falling 2.7% to ¥180.7 billion. Sometimes such a movement is seen as unhealthy for a country. But on this occasion, it seems more to reflect the emerging improvement in Japan that makes it more attractive for investment.

In releasing these data today, the Bank of Japan added industry and country detail. Haver Analytics will be adding these data to the JAPAN database soon. They will greatly enhance the understanding Japan's capital flows and values in world markets.

Japan: End of Year, Bil.¥ 2005 2004 2003 2000 1995
Assets Abroad 506,191 433,864 385,538 341,206 270,738
  Direct Investment 45,605 38,581 35,932 31,993 24,520
  Portfolio Investment 249,493 209,247 184,353 150,115 88,257
    Equity 48,200 37,972 29,394 30,133 15,040
    Debt Securities 201,294 171,275 154,959 119,982 73,217
Domestic Liabilities 325,942 248,067 212,720 208,159 186,666
  Direct Investment 11,903 10,098 9,610 5,782 3,448
  Portfolio Investment 181,959 120,091 92,873 101,609 56,379
  Loans 98,105 90,776 83,665 76,212 97,759
Net Assets 180,699 185,797 172,818 133,047 84,072
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