Capital Flows in Japan

Capital Flows In Japan

After the Meiji Restoration, as Japan ended sakoku, the policy of isolation and opened up to participation in international markets, the state followed a policy of discouraging foreign investment. Borrowing abroad was only done if deemed necessary and unavoidable, given state concerns about vulnerability to foreign debt. Their were fears that Japan could see a challenge to her sovereignty if debts became large, and foreigners could find a justification for intervention, as happened to some contemporary states of the time like Mexico and Egypt. Encouragement and state support was given to domestic investors, including the sponsorship of new industrial ventures under state ownership, and then their eventual privatization (to Japanese investors.)

After World War II, Japan's return to world capital markets as a borrower was slow and deliberate. Even before the war, Japan did not participate in world capital markets to the same extent as did the United States or West European countries. Caution and control remained strong until well into the 1970s, when Japan was no longer a net debtor nation. Since that time, deregulation has proceeded steadily, and capital flows have grown rapidly. The rapid growth of investment abroad in the 1980s had made Japan the largest net investor in the world by the end of the decade.