Capital Flows in Japan - Purpose

Purpose

Capital movements offset the surpluses or deficits in the current account. A current account surplus, for example, implies that rather than using all the foreign currency earned by selling exports to buy imports, corporations and individuals choose to invest the money in foreign-currency-denominated assets instead. As measured in Japan's balance of payments data, capital movements consist of long- and short-term investments and movements in official foreign exchange reserves and private bank accounts. Capital movements include loans, portfolio investments in corporate stock, and direct investment (establishment or purchase of subsidiaries abroad). A capital outflow occurs when a Japanese individual or corporation makes a loan, buys foreign stock, or establishes a subsidiary abroad. A capital inflow occurs when foreigners engage in these operations in Japan.