Japan's Balance of Payments for 2009

June 2010 International Department Bank of Japan This is an English translation of the Japanese original released on March 5, 2010.

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Contents
I. Summary II. Current Account A. Summary B. Developments in the Main Components 1. Goods a. Exports b. Imports 2. Services a. Transportation b. Travel c. Other services 3. Income 4. Current transfers III. Capital and Financial Account A. Summary B. Developments in the Main Components 1. Direct investment a. Outward direct investment (assets) b. Inward direct investment (liabilities) 2. Portfolio investment a. Outward portfolio investment (assets) b. Inward portfolio investment (liabilities) 3. Financial derivatives 4. Other investment Boxes Box 1. Developments in the Overseas Activities of Japanese Companies Reflected in "Other Services" Box 2. Features of the Income from Outward Direct Investment in 2009 Box 3. Classification of Direct Investment by Type of Investment Box 4. Recent Developments in Outward Portfolio Investment by Investment Trusts Box 5. Developments in Inward Investment in Bonds and Notes and Transaction with Repurchase Agreements Box 6. Cross-Border Flows of Funds in 2009 35 40 44 47 50 52 Page 1 3 3 4 4 5 7 10 11 12 14 15 17 18 18 19 19 19 21 22 22 28 31 32

I. Summary
Japan's current account surplus decreased in 2009 for the second consecutive year to 13.3 trillion yen, down from 16.4 trillion yen in 2008, mainly due to a decrease in the income surplus. The capital and financial account deficit (net outflow) decreased to 12.7 trillion yen in 2009, down from 18.4 trillion yen in 2008. Reserve assets continued to increase, rising by 2.5 trillion yen in 2009 compared to an increase of 3.2 trillion yen in 2008. Balance of payments data for the whole of 2009 and the fourth quarter of 2009 in this report are preliminary unless otherwise stated. In balance of payments statistics, the following relationship holds true at all times: Current account + capital and financial account + changes in reserve assets + errors and omissions = 0. Japan's balance of payments for 2009 shows that the current account surplus earned is mirrored by reverse flows abroad in the form of a capital and financial account deficit (outflows) and an increase in reserve assets. Figure 1: Balance of Payments
30 tril. yen
(Current account surplus, net capital inflows, and decrease in reserve assets)

20

10

0

–10
Current account Capital and financial account Changes in reserve assets (Current account deficit, net capital outflows, and increase in reserve assets)

–20

–30 2000 01 02 03 04 05 06 07 08 p09

Note: "p" denotes preliminary data. The same applies to the remainder of the report.

1

Table 1: Japan's Balance of Payments
bil. yen

2007

2008

p2009

Change from the previous year

Highlights

Current account
Goods and services

24,793.8

16,379.8

13,278.2

–3,101.6

The surplus decreased for the second consecutive year mainly due to a decrease in the income surplus.

9,825.3

1,889.9

2,119.6

+229.7 The surplus increased.

Goods

12,322.3

4,027.8

4,061.1

+33.3

The surplus was more or less unchanged from the previous year, while both exports and imports declined significantly. Exports decreased for the second consecutive year, reflecting sluggish world economic conditions. Imports decreased mainly due to a drop in prices of commodities such as crude oil and natural gas.

Exports

79,725.3

77,334.9

50,840.3

–26,494.6

Imports

67,403.0

73,307.1

46,779.1

–26,528.0

Services

–2,497.1

–2,137.9

–1,941.5

+196.4 The deficit decreased, with both credits and debits registering a decrease.

Income

16,326.7

15,841.5

12,322.9

–3,518.5

The surplus decreased for the second consecutive year primarily due to a drop in receipts of portfolio investment income. The deficit decreased mainly due to a decrease in tax payments to governments of oil-producing countries. Net outflows decreased as inward investment in equity securities turned to a net inflow from a net outflow in the previous year. The amount of net executions (outflows) dropped significantly mainly due to a lack of large-scale transactions as opposed to the previous year. Net inflows decreased significantly due to a lack of large-scale investments seen in the finance and insurance sector in the previous year.

Current transfers

–1,358.1

–1,351.5

–1,164.3

+187.2

Capital and financial account
Of which:  Outward direct investment  Inward direct investment

–22,538.3

–18,389.5

–12,732.3

+5,657.2

–8,660.7

–13,232.0

–7,033.4

+6,198.6

2,655.2

2,524.6

1,119.2

–1,405.3

 Outward portfolio investment

–12,929.8

–13,978.2

–16,267.4

–2,289.1

Equity securities

–2,957.6

–6,414.9

–3,026.2

+3,388.7

Net purchases (outflows) increased, primarily due to an increase in net purchases (outflows) of bonds and notes.
Bonds and notes –10,247.8 –7,329.9 –13,141.9 –5,811.9

Money market instruments

275.6

–233.4

–99.3

+134.1

 Inward portfolio investment

24,922.6

–10,343.6

–4,820.0

+5,523.6

Equity securities

5,444.2

–7,464.1

1,100.6

+8,564.6

Net sales (outflows) decreased, primarily because investment in equity securities turned from net sales (outflows) to net purchases (inflows).
Bonds and notes 10,496.7 –4,419.1 –7,716.7 –3,297.7

Money market instruments

8,981.7

1,539.6

1,796.2

+256.6

 Financial derivatives

324.9

2,456.2

987.2

–1,469.0 Net receipts (inflows) of funds decreased.

 Other investment

–28,413.1

14,510.0

13,618.3

–891.7

Net inflows of fund persisted as banks collected the funds they had lent to their overseas branches.

Changes in reserve assets Errors and omissions
Ratio of current account to nominal GDP (%)

–4,297.4

–3,200.1

–2,526.5

+673.6 Reserve assets continued to increase.

2,041.9

5,209.8

1,980.6

–3,229.2

4.8

3.2

2.8

Notes: 1. Negative figures represent capital outflows. Negative figures in "changes in reserves assets" represent an increase in reserve assets. 2. Figures for portfolio investment and other investment exclude securities lending transactions.

2

6 4.494.334. yen Table 2: Current Account bil.5 +187. yen 2008 Current account Goods and services Goods Exports Imports Services Income Current transfers 16.027.4 –3.9 –1.322.5 –1.1 50.518.8 1.841.164.061.779. Figure 2: Current Account 30 25 20 15 10 5 0 –5 –10 2000 Goods Other services 01 02 03 Income Transportation 04 05 Travel Current account 06 07 08 Current transfers p09 tril.5 12.1 –2.379. with a decrease in both credits and debits.2 3 .3 Change from the previous year –3.137. Current Account A.9 73.119. The trade surplus was more or less unchanged from the previous year.6 –26.9 4.0 +196. The deficit in the balance of trade in services decreased.5 p2009 13.6 +229.II.351.8 77.528.7 +33.3 46.889. mainly due to a decrease in the income surplus.278.2 2.941. The surplus in the balance of income decreased for the second consecutive year. while both exports and imports declined significantly.840.9 15.1 –1.3 –26. Summary The current account surplus decreased for the second consecutive year.101.307.

The definitions of exports and imports in the balance of payments statistics differ from those of the merchandise trade statistics in the Trade Statistics of Japan. yen 15 10 5 0 –5 –10 –15 25 20 15 10 5 0 5 10 15 20 25 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 Imports Exports Balance of goods (right scale) pQ4 tril. In this report. yen 4 3 2 1 0 –1 –2 –3 –4 tril. Merchandise Trade Statistics Price quoted Coverage Exports: FOB Imports: CIF Goods that have crossed the customs frontier of the reporting economy Exports: When the ship or aircraft carrying the goods leaves the port Imports: When imported goods are officially recognized Balance of Payments Statistics Exports: FOB Imports: FOB Goods whose ownership has changed between residents and nonresidents (in principle) When ownership changed Time of recording Note: FOB stands for "free on board" and CIF stands for "cost. 4 . the trade balance recorded a deficit in the first quarter. freight charges and insurance premiums are recorded in addition to the price of goods. Exports decreased for the second consecutive year. Developments in the Main Components 1. exports recovered and the balance turned positive.1 Figure 3: Exports and Imports (By year) 100 80 60 40 20 0 20 40 60 80 100 2000 01 02 03 04 05 06 07 08 p09 Imports Exports Balance of goods (right scale) 1 (By quarter) tril. By quarter.0 trillion yen in 2008.B. mainly due to the drop in exports reflecting sluggish world economic conditions. as it did in the fourth quarter of 2008." On an FOB basis. On a CIF basis. insurance. certain adjustments are made to compile the balance of payments statistics. Balance of payments statistics are based on the change-of-ownership principle. while both exports and imports declined significantly. while merchandise trade statistics are recorded on a customs-clearance basis. Therefore. while imports decreased for the first time in seven years. Goods The balance of trade in goods in 2009 registered a surplus of 4. yen Figures for exports and imports are based on the Trade Statistics of Japan (customs-clearance basis). and freight. yen tril. The major differences are as follows.1 trillion yen. the price of goods at the border of the exporting country is recorded. more or less unchanged from 4. figures for exports and imports by region and type of goods are based on the Trade Statistics of Japan. From the second quarter.

and manufactured goods. and exports of these goods to the whole world exceeded the previous year's level in the fourth quarter.3 trillion yen in 2008. raw materials. 5 . mineral fuels. particularly to China.a. exports of chemicals to Asia. the amount of exports to China started to exceed the previous year's level in the third quarter. Figure 5: Contribution to Overall Export Growth by Item 30 20 10 0 –10 –20 –30 –40 –50 y/y % chg By quarter 2006 07 08 p09 09/Q1 Q2 Q3 pQ4 Transport equipment Machinery Other exports Materials Electrical machinery Value of overall exports Note: Figures for materials represent the sum of figures for foodstuffs. By quarter. The size of the decrease in exports of motor vehicles and related goods to the United States and the European Union declined throughout the year. exports fell significantly below the level of a year earlier in the first quarter. chemicals. Figure 4: Contribution to Overall Export Growth by Region 30 20 10 0 –10 –20 –30 –40 –50 y/y % chg By quarter 2006 07 08 p09 09/Q1 Q2 Q3 pQ4 United States China Value of overall exports Asia (excluding China) Middle East European Union Other countries Note: Figures for the European Union are compiled retroactively based on the increase in membership in 2007 to 27 countries. reflecting sluggish world economic conditions. Exports Exports decreased for the second consecutive year to 50. Source: Ministry of Finance. moreover. Trade Statistics of Japan. By region and by item. pushing the figure to a new all-time high for the second quarter in a row. down from 77. exports to all key regions dropped sharply and exports of all major goods including motor vehicles and related goods decreased. Also. but the size of the decrease from a year earlier diminished thereafter.8 trillion yen. continued to recover.

2 approximately 40 percent due to a drop in prices.1 –1. those to China –10.6 Source: Ministry of Finance. mineral fuels. Exports. Machinery –39. Source: Ministry of Finance.2 started to exceed the previous year's level in the third quarter. % points Total exports Year-on-year change (Contribution to overall export growth) United European Union States Asia Middle East Central Of which: China Russia and South Oceania America Africa –33.3 Exports of construction machinery decreased approximately 60 percent. the value of such exports to the whole world decreased by –7.7 –27. 6 .0 –36. reflecting the recovery in exports to Asia.8 –26.7 peripheral equipment to the United States and European Union in particular. Table 4: Exports by Item %. However. –5. raw materials. notably to China. and manufactured goods. also decreased approximately 40 percent. pushing the figure to a new all-time high for the second quarter in a row.1 –20. Trade Statistics of Japan. recovered slowly throughout the year.6 –1. Exports of computers –7. while exports to the United States and the European Union halved.0 Exports of motor vehicles and related goods decreased significantly.0 While the quantity of exports of iron and steel products to Asia increased in the second half of the year. on a year-on-year basis.3 –42.9 –3.8 –82.1 ― ― Transport equipment –41.9 Note: Figures for materials represent the sum of figures for foodstuffs.6 –13.6 –1.7 the value of exports fell below the previous year's level because exports of semiconductors and electric parts of audio and visual apparatus decreased.9 –5. Electrical machinery –29.4 –35.9 –1.1 ― –38. By region. by and the by Materials –28. Trade Statistics of Japan.5 –6. Exports of chemicals exceeded the previous year's level in the fourth quarter.2 –0. chemicals. particularly to Asia.8 –40.Table 3: Exports by Region %. % points Contribution to overall export growth y/y change Major factors Total exports Of which: –33.

raw materials. Trade Statistics of Japan. Figure 7: Contribution to Overall Import Growth by Item 30 20 10 0 –10 –20 –30 –40 –50 y/y % chg By quarter 2006 07 08 p09 09/Q1 Q2 Q3 pQ4 Mineral fuels Electrical machinery Value of overall imports Materials Transport equipment Machinery Other imports Note: Figures for materials represent the sum of figures for foodstuffs.3 trillion yen in 2008. however. and manufactured goods.8 trillion yen. In the fourth quarter. 7 . down from 73. Source: Ministry of Finance. Imports Imports decreased for the first time in seven years to 46. chemicals. the year-on-year decrease shrunk following a rally in crude oil prices.b. steel. mainly due to a drop in prices of crude oil and liquefied natural gas as well as lower demand for coal. and iron ore. Figure 6: Contribution to Overall Import Growth by Region 30 20 10 0 –10 –20 –30 –40 –50 2006 07 08 p09 09/Q1 Q2 Q3 pQ4 Middle East China Value of overall imports Asia (excluding China) United States European Union Other countries y/y % chg By quarter Note: Figures for the European Union are compiled retroactively based on the increase in membership in 2007 to 27 countries.

7 Source: Ministry of Finance.6 –0. Iron ore (left scale) Liquefied natural gas (right scale) July 09/Jan.9 ― ― –48.000 800 600 0 2007/Jan. Figure 8: Import Prices of Crude Oil and Other Natural Resources 200 150 100 400 50 Crude oil (left scale) Coal (left scale) July 08/Jan. Source: Ministry of Finance. 200 0 USD USD 1.2 –1.3 –28.3 –50.3 –34. Trade Statistics of Japan.7 and visual apparatus decreased due to sluggish demand and dropping prices.3 –11.3 –2. Imports of motor vehicles and related parts decreased –1. –2. Trade Statistics of Japan. % points Contribution to overall import growth y/y change Major factors Total imports Of which: Mineral fuels –34. and nonferrous metals decreased due to sluggish demand and a fall in prices.3 –60.2 –11.3 Imports of office machines and power generating machines decreased due to sluggish demand. Materials –30. which had been elevated until –17. 8 .4 –2. chemicals. other items in USD/ton.6 Imports of steel. Imports of coal decreased in terms of both quantity and price due to a decline in steel production. iron ore. Import prices are obtained by dividing the value of imports by the volume as recorded at the time of import.5 –35.7 –36. Notes: 1. 2. Source: Ministry of Finance. and manufactured goods. Crude oil in USD/barrel.4 –2. July Dec.7 Crude oil and natural gas imports decreased significantly due to the fall in prices.0 significantly from the previous year's level due to a slump in sales.0 –40. Table 6: Imports by Item %.9 –1.5 –22. raw materials. % points Total imports United European Union States Asia Of which: China Middle East Central Russia and South Oceania America Africa Year-on-year change (Contribution to overall import growth) –34.9 –4.6 –30.Table 5: Imports by Region %. Imports of semiconductors and electric parts of audio Electrical machinery Machinery Transport equipment –24.9 ― –31. Trade Statistics of Japan.1 the previous year.2 –24.5 –3. Note: Figures for materials represent the sum of figures for foodstuffs.7 –9.

86JPY Figure 2 for Reference: Exports and Imports by Settlement Currency Exports EURO 6.14JPY JPY 153.4% USD 70. 9 .23JPY 130.4 percent yen appreciation from 2008).8% Imports EURO 3.3 This appreciation of the yen contributed to the decrease in yen-denominated values of exports and imports.7% JPY 39.3% Source: Ministry of Finance.52JPY 90 2000 01 02 03 USD/JPY 04 05 06 07 EURO/JPY 08 09 104. Figure 1 for Reference: Foreign Exchange Rates Used for the Calculation of Customs Values (Annual Average Rates) 170 160 150 140 130 120 110 100 93. and are posted weekly.8% USD 49. which are released by customs pursuant to Article 4-7 of the Customs Act. 2 The foreign exchange rates used for the calculation of customs values.6% Other currencies 1.9% Other currencies 3.(Reference) Developments in Foreign Exchange Rates in 2009 The average foreign exchange rates applied to the calculation of customs values2 for 2009 were 93.52 yen per dollar (a 10. are the weekly average inter-bank rates (central spot rates) on the Tokyo Foreign Exchange Market from two weeks earlier.5% JPY 24. 3 These average annual values were obtained by weighting the weekly posted rates by the number of days applicable.3 percent yen appreciation from 2008) and 130.14 yen per euro (a 15.

9 313.763.419.3 Credits decreased against a backdrop of declines in –103. Travel –1.9 license fees" and payments for "miscellaneous business.0 10 .7 cargo volumes and a fall in freight costs due to sluggish world economic conditions.1 –1. with a decrease in both credits and debits. yen Transportation Other services Table 7: Balance of Trade in Services bil.2 Other services 356.4 Transportation –731.1 trillion yen in 2008. professional.137.9 –1. and technical services" decreased.941. The deficit decreased due to a smaller number of +344.5 +196.9 trillion yen from 2.6 –835. Services The deficit in the balance of trade in services decreased to 1. The surplus remained more or less unchanged from the previous year's level as receipts of "royalties and –43. Figure 9: Services 2 1 0 –1 –2 –3 –4 –5 –6 2000 01 Travel 02 03 04 05 06 07 08 Net balance p09 tril. yen 2008 p2009 Change from the previous year Major factors ― Services –2.2.0 Japanese traveling abroad and a drop in their per capita expenditures.

094.4 336. Figure 10: Transportation 1.7 –220.2 –536. because the number of Japanese traveling abroad and –99.4 236. Both credits and debits dropped sharply due to sluggish cargo movements.2 58. Sea freight credits dropped.2 383.7 Both credits and debits dropped as the agency fees that Japanese and foreign airlines –83.9 ― Debits dropped as terminal charges paid by Japanese shipping companies at overseas –56.1 226.3 Both credits and debits dropped as a result of a fall in air cargo volumes and airfare –110. terminal charges paid by Japanese shipping companies at overseas ports.045.8 of foreign visitors to Japan decreased and at the same time fuel surcharges. yen By quarter (right scale) tril.037. Debits also decreased.4 –458. also decreased due to sluggish cargo movements.0 Sea freight Others Passenger air transport Net balance Table 8: Balance of Transportation bil.6 205. Transportation The deficit in the balance of transportation slightly increased to 0.7 remained at a high level in the previous year. which had –259.9 1.8 Change from the previous year Major factors ― ― –103. a decrease in the number of travelers.5 299.9 –834.6 –0.5 –464.8 Credits dropped as freight receipts related to exports and transportation between foreign countries decreased reflecting a fall in cargo volumes and freight rates due to –1.8 3.2 879.1 imports decreased.6 100.7 523. yen 2008 Transportation Of which:  Sea transport Freight Credit Debit Other sea transport Credit Debit  Air transport Passenger Credit Debit Freight Credit Debit Other air transport Credit Debit –731.6 1. fare payments by passengers to foreign airlines decreased.8 –300. Debits also dropped as payments for transportation of –1.009.2 0. fell significantly. In addition.0 –28. +243.1 147.1 275.7 trillion yen in 2008.5 3.7 736.951.7 p2009 –835.8 –1.9 abroad and of foreign visitors to Japan.1 1. yen 0.568. 11 . which are included in other sea transport.a. Regarding passenger air transport. +159.8 trillion yen.7 2.0 –0.5 1.1 200. especially with regard to the transportation of imports.9 the sluggish world economy.2 0.0 107.3 52.8 0.139.2 –0.2 –1.558.9 Both credits and debits dropped.4 0.8 –349.7 paid their agents declined due to the decrease in the number of Japanese traveling –54.3 –481. –89.4 –0. –21.6 +109.8 0. and a fall in both freight and passenger transportation rates.4 0. with transportation between foreign countries being the main factor.9 257.5 305.1 –674.1 246.8 –1.9 79. up from 0.4 –0.6 0.0 –0. reflecting the smaller number of Japanese traveling abroad as well as a drop in fuel surcharges.6 –2.6 –260.3 –779.0 2000 01 02 03 04 05 06 07 08 p09 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 Other sea transport tril.3 rates.8 ports decreased due to sluggish cargo movements.

419.5 –2.0 1.0 –1. yen 1. yen 2008 Travel Credit Debit –1.4 trillion yen.4 percent from the previous year.0 2. and the spread of H1N1 influenza virus in Japan. Figure 11: Travel 2.2 Change from the previous year +344.0 Credit Table 9: Balance of Travel bil.0 tril. The number of visitors from Asia. The number was down 3. Per capita expenditures of Japanese travelers also dropped.0 –0.6 2.118.1 percent from the previous year.8 trillion yen in 2008.6 –505. decreased.b. down from 1. yen By quarter (right scale) 0. particularly from South Korea and Taiwan.5 0.881.8 p2009 –1.0 –2. registering a decline of 16.0 –4.0 –161. Travel The deficit in the balance of travel decreased for the fifth consecutive year to 1. falling to the lowest level since 2003. as payments by Japanese traveling abroad decreased. The number of foreign visitors to Japan dropped by 18. the year of the outbreak of severe acute respiratory syndrome (SARS).0 –3.763.6 12 .0 0.376.5 –1.2 957.0 –1.7 percent from the previous year reflecting sluggish world economic conditions.0 2006 07 08 p09 08/Q1 Q2 Debit Q3 Q4 09/Q1 Q2 Net balance Q3 pQ4 tril.1 1. the appreciation of the yen. The number of Japanese traveling abroad decreased due to the economic downturn and the spread of H1N1 influenza virus.

Visitor Arrivals and Japanese Overseas Travelers. Figure 13: Number of Foreign Visitors to Japan Total Visitors 10 8 6 4 2 0 2003 04 05 06 Asia 07 08 p09 Europe 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 North America Other regions mil. people Source: Japan National Tourism Organization. 13 . Source: Japan National Tourism Organization. Visitor Arrivals and Japanese Overseas Travelers. people 3.5 0. people By quarter (right scale) 4 3 2 1 0 mil.0 South Korea Taiwan Note: Figures for 2009 are estimated by the International Department of the Bank of Japan using the actual figures for January through October 2009. people 5 Visitors from Asia 7 6 5 4 3 2 1 0 2003 04 05 06 07 08 p09 China 08/Q1 Q2 Q3 Q409/Q1Q2 Q3 pQ4 Hong Kong Other Asian countries mil.5 2.Figure 12: Number of Japanese Traveling Abroad 18 16 14 12 10 2003 04 05 06 07 08 p09 mil.0 2.0 0. people By quarter (right scale) mil.0 1.5 1.5 3.

043. almost unchanged from the previous year's level (0.6 152. yen Royalties and license fees Construction services Miscellaneous business.2 –147.5 The surplus dropped primarily because receipts from the Middle East decreased.4 7." 4 14 .4 1. debits also decreased as payments of M&A advisory fees. advertising.2 For details. The deficit continued due to payments of reinsurance premiums to foreign +369. investment advisory fees to overseas investment companies.c.3 1.5 97.0 2.9 world economic conditions.4 764.148.1 80.0 –106.0 Credits dropped as royalties from overseas subsidiaries of Japanese car manufacturers decreased reflecting a fall in production.1 –322. "Developments in the Overseas Activities of Japanese Companies Reflected in 'Other Services'.394.9 2.645.4 1.3 ― The surplus in merchanting decreased as consumption slowed due to sluggish –224.3 2.1 –634.0 1.273.6 –312. and technical services Credit Debit 356.020.0 7.4 285.7 reduction policies implemented by companies. see Box 1.418. professional.655. –48.160.4 457.7 –1.982.3 trillion yen.9 1. and research and development decreased reflecting sluggish sales and the cost –57.400.3 563.7 –400.8 452. However. professional.7 964.4 trillion yen).4 Change from the previous year Major factors –43.0 +20.452.037.6 +31.6 172.7 480.5 insurance companies.064. and structuring fees for structured bonds decreased.555.0 1.0 100.4 1.5 –16. Other services The balance of trade in other services recorded a surplus of 0.4 2.6 2.498.4 1.890.0 1. professional. as receipts of "royalties and license fees" and payments for "miscellaneous business.350. yen 2008 Other services Credit Debit Of which: Merchanting and other trade-related services Credit Debit Royalties and license fees Credit Debit Financial services  Credit  Debit Construction services  Credit  Debit Insurance services  Credit  Debit Miscellaneous business. –205.8 –1.2 –126. and technical services Computer and information services Net balance Merchanting and other trade-related services Financial services Insurance services Others Table 10: Balance of Other Services bil.9 1.9 –353. –110.442.235. and technical services" both decreased.958.5 411. –427. Debits also decreased as payments of royalties and software license fees for electronic machinery sector declined reflecting sluggish domestic production of electronic devices including personal computers and mobile phones.530.398.4 Figure 14: Other Services 4 3 2 1 0 –1 –2 –3 2000 01 02 03 04 05 06 07 08 p09 tril.1 –114.170.5 1.9 –1.4 9. Credits decreased as commissions received from foreign investors for trading in Japanese securities decreased.568.2 247.9 9.1 –1.6 Debits dropped as payments for sales and administration.6 p2009 313.3 –431.2 528.6 2.

045.4 –1.322.2 –356.5 7.280.811.342. Income The surplus in the balance of income decreased for the second consecutive year to 12.233. Figure 15: Income tril.515.684.3 2.6 –2.0 4.1 5 For details.9 –3.7 1.1 1.147. Credit of income on debt dropped sharply reflecting a decline in interest rates.6 825.6 –712.4 p2009 Change from the previous year 12.0 –766.6 5.4 –396.6 –160.128.869.5 The surplus in the balance of portfolio investment income continued to decline.8 8.698.6 –753.5 507.834.703.0 –2. The surplus in the balance of direct investment income decreased for the first time in six years.8 11.518.075.169.157.8 529.5 –457.483.323.5 3.3 986.841.2 10.455.9 1. with a decline in both credits and debits reflecting sluggish world economic conditions.5 2.4 –380.3 trillion yen.5 3.1 3. yen 20 tril.4 –1.9 888. The substantial appreciation of the yen also contributed to the drop in the yen value of receipts.033.9 1.8 trillion yen in 2008.222.6 8.749.016.3 986. and both credits and debits of income on equity also decreased significantly due to the drop in corporate profits. yen 8 15 By quarter (right scale) 6 10 4 5 2 0 Income on debt (net) Direct investment income (net) Net balance 02 03 04 05 06 07 08 Income on equity (net) Others (net) 0 –5 2000 01 –2 p09 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 Table 11: Balance of Income bil.8 –2.361.3. see Box 2.4 11.3 1.2 1.6 914. down from 15." 15 . "Features of the Income from Outward Direct Investment in 2009. yen 2008 Income Of which: Direct investment income Credit Debit Portfolio investment income Income on equity Credit Debit Income on debt Credit Debit Other investment income Credit Debit 15.

50 5.34 3.4 Note: The exchange rates shown are the rates determined in accordance with Article 35.0 121.45 +0.24 3.4 133.93 Q2 3.68 Source: Bloomberg.52 +11.52 Q4 3.45 –0.09 4.70 –0.2 206.5 126.22 5. 16 .95 3.33 –0.5 159.10 –0.1 Q1 92.97 –11.40 3.16 4.88 5.67 –6.03 –1.38 –1.45 5. paragraph 2.1 145.54 –31. Table 13: Currency Exchange Rates (Annual Average) yen.26 3.23 +0.Table 12: Long-Term Interest Rates (10-Year Government Bonds. etc.18 2009 3.73 3.70 –0.5 Q2 96.22 –0.88 3.82 –0.0 2009 94.99 4.23 4.76 –19.03 –20.3 128.83 –5.50 –0.46 +0.8 65.60 –0.34 Q3 3.0 61.56 –26.26 5.01 +0.24 –0.95 3.60 –3.33 –11.00 –0.1 150.30 –0.98 5.6 97.27 –0.33 –10.8 79.62 –0.2 Q3 96.77 Q1 2.00 –12.3 94.8 138.44 –19.75 +1.94 –36.57 –31.29 –20.72 –0.9 Q4 92.84 3.8 159.9 133. % 2007 USD/JPY Year-on-year change EUR/JPY Year-on-year change GBP/JPY Year-on-year change AUD/JPY Year-on-year change 118.94 –24.99 +0.25 –0.82 –25.1 75.04 –0.64 –0.9 2008 106.54 +11.52 5.61 –24.7 154.56 3.4 139.7 235.00 –9.17 –38. % points 2007 United States Year-on-year change Germany Year-on-year change United Kingdom Year-on-year change Australia Year-on-year change 4.50 +10.61 –12.49 –0.22 –1.5 70.40 2008 3.64 –29.60 –1.67 –16. Annual Average) %.38 –0. of the Ministerial Ordinance Concerning Reports on Foreign Exchange Transactions.

9 1. yen Table 14: Balance of Current Transfers bil.3 446.3 reflecting the sluggish economic conditions.1 749.1 countries decreased following the drop in crude oil –143.3 –286.9 The deficit decreased as foreign workers' remittances –27. The deficit decreased due to a decline in tax payments to governments of oil-producing countries following the drop in crude oil prices.2 –1. yen 2008 Current transfers Public sector Credit Debit Other sectors Credit Debit Workers' remittances Credit Debit Other transfers Credit Debit –1.164. Figure 16: Current Transfers 0.0 –623.2 –813.2 trillion yen.8 +190.1 132. –242.1 Tax payments to governments of oil-producing –25. 17 .5 to governments of oil-producing countries decreased.5 –538.4 trillion yen registered in 2008. contributions to international organizations.6 2000 01 02 03 04 05 06 07 Net balance 08 p09 Public sector (net) Other sectors (net) tril. +118.0 p2009 –1. The deficit reflects the following transactions: tax payments to governments of oil-producing countries.4 to family members in their home countries fell –99.8 –1.3 –541.0 –1.0 910.3 –527.0 –52. slightly decreasing from 1. Current transfers The deficit in the balance of current transfers amounted to 1.2 prices.723.8 ― The deficit continued due to the contributions to +1.0 –0.351.3 32.9 347.0 international organizations.4 –1.0 857.5 31.4.133.2 –2.7 –214.2 0.2 1.5 The deficit decreased.2 –0.7 574. +3.7 1.7 Change from the previous year Major factors +187.480.4 –0. mainly because tax payments +71.7 570.8 1.277.0 –409.6 –0. and foreign workers' remittances to family members in their home countries.0 160.0 724.

4 –16.2 –6.3 –1.853.026.200.526.4 –24.2 18.539.396. The reason is that such transactions are large and volatile.864.223. down from 18.716.278. Summary The capital and financial account recorded a net outflow of 12.087. Figures for securities lending transactions are not included in the analysis in this report unless otherwise noted.5 1.4 trillion yen in 2008. Table 15: Capital and Financial Account bil.743.914.925.732.3 27.379.879.0 1.796.672. and an increase in reserve assets.820.0 13.2 –12.7 1.0 1.749.232. yen 2008 Current account Capital and financial account Financial account Direct investment Portfolio investment Equity securities Bonds and notes Money market instruments Financial derivatives Other investment Of which:  Interoffice account  transactions of banks Capital account Changes in reserve assets Errors and omissions 16.7 trillion yen in 2009. Capital outflows are registered in the case of outward investments and loans by residents.2 –4.4 –558.3 –2.5 12.100. withdrawals of inward investments and the collection of loans by nonresidents.2 –21.8 –13.419.6 Liabilities (inward investment) 1.6 Assets (outward investment) –7.306.2 2. Figures in this table exclude securities lending transactions.8 –6.980.598.299.4 Liabilities (inward investment) 2.6 1.3 –3.3 –12.321.0 –5.033.4 –3.707. "Other investment" continued to record a net inflow.414.6 –25.7 1.9 987.464.8 20.1 929.2 –13.0 –4. Capital and Financial Account A.524.209. 2.329.312.922.696.063.656.4 27.0 –13.389.8 Assets (outward investment) –13. and including them in portfolio investment or other investment in the capital and financial account would therefore make it difficult to grasp trends in securities transactions and loans.3 31.141.978.466.6 –20.9 –7.2 –30.5 6.6 –7.6 –10.1 –4.3 p2009 Notes: 1.III.359.456.618.216.267.343. Negative figures represent capital outflows. The net outflows of direct investment and portfolio investment decreased.119.8 –18.9 –233.9 –465.5 –18.6 –7.858.2 14.0 –11.510.1 1.0 –10.2 13.9 –99.1 5.0 –5. 18 .

0 – 12.B. "Classification of Direct Investment by Type of Investment. capital increases. Those subordinated loans are recorded under "other investment. such as initial capitalizations. 8 Inward direct investment refers to direct investments by foreign investors in Japanese corporations (in which the foreign investor has an ownership stake of at least 10 percent).5 0. 9 The latter took the form of participation certificates issued by overseas special purpose companies (SPCs) that are subsidiaries of Japanese financial institutions and underwritten by Japanese securities companies. which had been 6 For a classification of types of direct investment. or to purchase subordinated bonds from.0 – 7. and reinvested earnings.0 2.5 trillion yen in the previous year. loan capital (excluding loans between financial companies). registering a net inflow of 1.0 – 2. In most cases. Direct investment 6 6 Outward direct investment by residents7 decreased significantly. the participation certificates underwritten by Japanese securities companies are recorded under securities companies' direct investment in SPCs. capital increases. yen Net outflow (Outward direct investments executed.5 – 5.0 trillion yen from 13. these participation certificates are sold to domestic financial institutions immediately after underwriting.5 5. Developments in the Main Components 1. such as initial capitalizations." 19 . when it hit a record high.5 – 10. Capital raised through the issuance of participation certificates is often used to make subordinated loans to. the total amount dropped significantly due to (1) a lack of large-scale transactions. down from 2.9 However. parent financial institutions.1 trillion yen. loan capital (excluding loans between financial companies)." and subordinated bonds are recorded under "portfolio investment. Inward direct investment by nonresidents8 also decreased significantly. There were some large-scale acquisitions with the aim of expanding overseas business mainly in the food and pharmaceutical industries and investments to boost the capital of Japanese financial institutions.2 trillion yen in 2008. see Box 3. Outward direct investments withdrawn) 89 91 93 95 97 99 2001 03 05 07 p09 tril." 7 Outward direct investment refers to direct investments by Japanese investors in foreign corporations (in which the Japanese investor has an ownership stake of at least 10 percent). registering a net outflow of 7. Inward direct investments withdrawn) Outward direct investment Net balance a. Figure 17: Outward and Inward Direct Investment – 15. Outward direct investment (assets) Net outflows of outward direct investment dropped significantly. and reinvested earnings.0 1985 87 Inward direct investment Net inflow (Inward direct investments executed. Often.

6 2007 –8. and (2) massive capital participations were executed in the financial sector in the previous year.9 trillion yen in 2008.8 –3. but not in 2009. the total net outflow decreased as there were redemptions of participation certificates at maturity.3 –1.2 –9. down from 2. and (2) a plunge in reinvested earnings reflecting the deteriorating business performance of overseas subsidiaries. yen 20 .4 2006 –5.2 2008 –13.0 –5. Table 16: Outward Direct Investment tril.0 –3. the total amount was below that for 2008 due to a plunge in reinvested earnings following the deterioration in the business performance of overseas subsidiaries and a decrease in the amount of capital increases in subsidiaries in the financial sector. Net outflows to the European Union amounted to 1. Net outflows to other regions amounted to 2.2 –1.3 +0.5 trillion yen in 2009. decreasing from 2.2 –0. Figure 18: Outward Direct Investment (By Region) – 14 – 12 – 10 –8 –6 –4 –2 0 2000 01 02 03 04 North America Asia (excluding China) 05 China 06 07 European Union 08 Others p09 tril. Although there was a large-scale acquisition to expand overseas business by a food company.3 –0. net outflows dropped significantly as (1) reinvested earnings plunged reflecting the deteriorating business performance of overseas subsidiaries.9 trillion yen. yen 2005 Outward direct investment Equity capital Reinvested earnings Other capital –5.5 –1.4 +1.6 trillion yen in 2008.7 –2. However.5 Change from the previous year +6.5 (1) Breakdown by region Net outflows to Asia in 2009 stood at 1.4 trillion yen in 2008. Notable investments include large-scale capital participations in the telecommunications and food industries with the aim of gaining access to local markets.7 –6. down from 4. Investments in North America include acquisitions in the pharmaceutical industry to expand overseas distribution channels and investments for capital increases in the financial sector.3 trillion yen in 2008.6 trillion yen in 2009.4 –1. There were large-scale acquisitions in the food industry in Oceania and acquisitions of participation certificates issued by special purpose companies (SPCs) in Central and South America set up by Japanese financial institutions for the purpose of strengthening their capital base. However.0 p2009 –7. down from 3.5 –0. Net outflows to North America amounted to 1.1 –2.seen in the previous year.9 –0.0 trillion yen in 2009.2 +4.

due to sluggish purchases of Japanese real estate by investment funds residing in the region.0 7. for the purpose of balance of payments statistics. up from 0.1 trillion yen in 2009. 21 . The significant decrease in 2009 reflects the fact that foreign companies clearly refrained from making direct investments due to the global economic slowdown.5 –5. Investment from the European Union increased to 0.0 2000 01 02 03 04 05 06 07 08 p09 Withdrawal (outflow of capital) tril.6 trillion yen in 2008 to a small net outflow of 13 billion yen in 2009. the total amount was below that for 2008.5 5. as there were no major investments similar to the capital participations in Japanese financial institutions or the large-scale lending to a wholesale and retail company seen in 2008. The increase in net inflows reflects the fact that part of the public share offerings of Japanese financial institutions and in the electrical machinery industry were underwritten by securities companies residing in the European Union.2 trillion yen in 2009 from 1.b.0 –2. Investment from other regions turned from a net inflow of 0. Although there were investments for capital increases in the finance and insurance sector. when large-scale investments took place.0 –7.3 trillion yen in 2008. Although there were investments in the finance and insurance sector and the electrical machinery industry for the purpose of financial restructuring. such transactions are recorded as inward direct investment when a security company underwrites 10 percent or more of the equities of the company which conducts the public offering.5 –10. yen Investment (inflow of capital) Net balance (1) Breakdown by region Investment from North America decreased significantly to 0. Inward direct investment (liabilities) Net inflows of inward direct investment decreased significantly from the previous year. the amount of investment was below that for 2008.5 0. when large-scale investments in the finance and insurance sector were executed. down from 0.10 Investment from Asia decreased to 0. Figure 19: Inward Direct Investment 10.0 2.2 trillion yen in 2008.9 trillion yen in 2009. 10 While these foreign securities companies sell the equities to portfolio investors after underwriting them.4 trillion yen in 2008.

inward portfolio investment recorded a decrease in net sales (outflows) to 4.0 trillion yen in 2008. 22 . Portfolio investment Outward portfolio investment recorded an increase in net purchases (outflows) to 16. due to a decrease in purchases of foreign equity securities by public and private pension funds through banks' trust accounts.0 trillion yen in 2009. down from 6.3 trillion yen in 2008. Figure 21: Portfolio Investment – 30 – 20 – 10 0 10 20 Inflow of capital 30 2000 01 02 03 04 05 06 07 08 Net balance p09 tril.3 trillion yen in 2009 from 14.1 trillion yen compared with 24.Figure 20: Inward Direct Investment (By Region) 3 2 1 0 –1 2000 01 02 Net withdrawal (outflow of capital) 03 Asia 04 05 06 07 Others 08 p09 tril. yen Net investment (inflow of capital) North America European Union 2. yen Outflow of capital Outward portfolio investment Inward portfolio investment a. Outward portfolio investment (assets) (1) Outward investment in equity securities (assets) Net purchases (outflows) of equity securities decreased to 3. there continued to be a large net outflow of portfolio investment amounting to 21. At the same time.3 trillion yen in the previous year.4 trillion yen in 2008.8 trillion yen in 2009 from 10. As a result.

Outward investments in equity securities by investment trusts continued to record net purchases (outflows). see BOX 4. 12 Public and private pension funds usually decide the weight of assets such as foreign equities and bonds and domestic equities and bonds in total assets prior to investment.6 trillion yen in 2008 as individual investors purchased investment trusts covering BRIC equities.13 Figure 23: Outward Investment in Equity Securities (By Sector) –8 –6 –4 –2 0 2 4 6 Net sales (inflow of capital) Banks' trust accounts Life and non-life insurance companies Banks 2000 01 02 03 04 05 06 07 08 Investment trusts Securities companies and others Total p09 09/Q1 Q2 Q3 pQ4 tril.8 trillion yen in 2009 from 0." 23 . "Banks" is the sum of the banking accounts of banks and trust banks.4 trillion yen in 2008. which are compiled on a contract basis. Figures for 2005 and after are based on the balance of payments statistics. as pension fund purchases associated with rebalancing transactions12 decreased amid the continued recovery in equity prices in the United States and Europe. 13 For trends in outward investments by investment trusts.Figure 22: Outward Investment in Equity Securities –8 tril. while "banks' trust accounts" is the sum of the trust accounts of banks and trust banks. yen Net purchases (outflow of capital) By quarter Note: Figures for years through 2004 are from "Securities Investment at Home and Abroad. yen Net purchases (outflow of capital) –6 –4 –2 0 2000 01 02 03 04 05 06 07 08 p09 (a) Developments by investor category Net purchases (outflows) through banks' trust accounts11 decreased to 2. 11 As pension funds often invest through banks' trust accounts. "Recent Developments in Outward Portfolio Investment by Investment Trusts. To rebalance their portfolios in order to maintain the desired weighting. they purchase/sell those assets whose weight in total assets has declined/increased due to changes in asset prices or exchange rates. this item tends to reflect investments by pension funds.4 trillion yen in 2009 from 5." which were compiled on a settlement basis. increasing slightly to 0.

6 57. net investment in Brazil increased significantly as a result of purchases made by individual investors through investment trusts.816. Table 17: Outward Investment in Equity Securities (By Region) bil.8 –71.957.0 –1.110.660.8 99.698.6 2008 –3. net purchases (outflows) of Chinese and other Asian equities also turned positive. yen 2007 United States European Union Of which: United Kingdom France Germany Asia Of which: China Hong Kong Korea Singapore Central and South America Of which: Brazil Cayman Islands Others Of which: Australia Total –161.414.850.0 –170.6 –498.8 –44.8 352.349.737.9 617.3 –148.8 –180.0 245.5 –208.6 –475.2 4.(b) Breakdown by region Investment in U.241.1 –403.2 –305.1 –350.213.6 –127.3 –159.7 1.026.S.1 3.3 –2.4 –895. and EU equities decreased as pension funds' purchases associated with rebalancing transactions decreased against the backdrop of the recovery in equity prices.3 –394.3 –740.8 –373.5 –6.1 –291.6 –95.444.1 32.8 –37.0 –224.0 –99.444.0 3.7 –49.6 Note: IIP stands for international investment position. 24 .9 –3. On the other hand.5 808.3 –224.1 35.286.9 p2009 –1.1 414.7 –1.9 –1.8 –264.1 5.4 499.3 –208.3 279.1 91.0 934. In addition.7 2.8 152.0 –454.2 3.164.7 –557.578.8 –138.2 IIP (end of 2008) 14.1 9.7 –451.6 1.541.0 –91.

July Source: Bloomberg.1 trillion yen in 2009. (2) Outward investment in bonds and notes (assets) Net purchases (outflows) of foreign bonds and notes increased to 13. up from 7. July 09/Jan. Figure 25: Outward Investment in Bonds and Notes – 25 – 20 – 15 – 10 –5 0 2000 01 02 03 04 05 06 07 08 p09 tril.3 trillion yen in 2008. 50 July 09/Jan. yen Net purchases (outflow of capital) 25 . primarily due to increased purchases by banks.Figure 24: Equity Price Indices in Major Markets (Yen Basis) Leading Industrialized Countries 250 First trading day of 2009=100 United States (S&P 500) Germany (DAX) United Kingdom (FTSE 100) Japan (TOPIX) BRICs 250 500 First trading day of 2009=100 Brazil Russia India China 500 450 400 350 300 250 200 150 100 50 450 200 200 400 350 300 150 150 250 200 100 100 150 100 50 2008/Jan. July 50 2008/Jan.

Net purchases (outflow) of foreign bonds and notes by life and non-life insurance companies increased to 1.0 5.1 trillion yen in 2008. In the first quarter.1 trillion yen in 2008.0 2. May June July Aug. banks tended to hold back from building up new positions due to concerns that interest rates might rise as a result of the economic recovery since spring.5 5. From the third quarter. 26 .0 6.4 trillion yen in 2009 from 1. Treasuries and German government bonds to take profits.5 6.5 2.5 5. as investments made by individual investors in currency-selective-type investment trust funds and funds covering bonds issued in countries with high-yielding currencies grew. banks built up new positions in U.1 trillion yen in 2008. Germany Sept. banks sold U.0 3.1 trillion yen in 2008. In the second quarter.S. up from 0. reflecting a decrease in purchases by pension funds.0 Dec.5 3.5 4. Treasuries and German government bonds in the expectation of a fall in interest rates.9 trillion yen in 2008. United States United Kingdom Source: Bloomberg.0 6.8 trillion yen in 2009. Net purchases (outflows) of bonds and notes by securities companies and others decreased to 0. Outward investment in bonds and notes through banks' trust accounts decreased to 0. down from 4.5 6.5 2. considering these to be more attractive investments than yen-denominated bonds given the decline in hedging costs due to low U. especially individual investors. (a) Developments by investor category Net purchases (outflows) of foreign bonds and notes by banks. Nov.5 4.0 4. and European short-term interest rates.0 4. Feb.7 trillion yen in 2009 from 0. government-guaranteed bonds issued by overseas financial institutions were purchased. Oct. They purchased foreign bonds and notes with currency hedging.S. Apr.0 2009/Jan. reaching a record high of 7.Figure 26: Long-Term Interest Rates in Major Markets (10-Year Government Bonds) 7. % % 7.0 3. Mar. reflecting the cautious investment stance of Japanese investors.1 trillion yen in 2009.0 5. mainly of low-risk sovereign bonds and government-guaranteed bonds issued by financial institutions. When interest rates declined in the fourth quarter. Net purchases (outflows) of foreign bonds and notes by investment trusts increased to 3.5 3. Australia Dec.S.2 trillion yen in 2009 from 1. increased significantly.0 2.

027.5 –10.392.1 –502. while "banks' trust accounts" is the sum of the trust accounts of banks and trust banks.5 31.141.131.170.3 –1.0 –846.7 –13.101.6 –443.308.1 –39. Table 18: Outward Investment in Bonds and Notes (By Region) bil. Figures for 2005 and after are based on the balance of payments statistics.3 –938.8 18.6 –2. 27 .5 1.3 –3. which are compiled on a contract basis.1 241.1 177.1 –517.247.S.4 –3.9 p2009 –6.117.9 –1.6 658.204.5 –963." which were compiled on a settlement basis.910.1 –95.151.9 –579.1 –100.173.3 –221. "Banks" is the sum of the banking accounts of banks and trust banks. while net purchases of Oceanian and South American bonds and notes increased mainly due to purchases by investment trusts.820.5 28.329. yen 2007 United States European Union Of which: Germany United Kingdom France Oceania Of which: Australia Asia Central and South America Of which: Brazil Cayman Islands Others Total –372.9 66.0 –3.1 4.8 216.7 –2.9 –1.4 5. (b) Breakdown by region Net purchases of U.287.3 –548.0 –585.326.889. and EU bonds and notes increased. yen Net purchases (outflow of capital) By quarter Note: Figures for years through 2004 are from "Securities Investment at Home and Abroad.086.486.0 –295.7 10.3 Note: IIP stands for international investment position.9 IIP (end of 2008) 54.235.4 –3.4 986.472.1 555.8 2008 –2.2 –7.Figure 27: Outward Investment in Bonds and Notes (By Sector) – 25 – 20 – 15 – 10 –5 0 Net sales (inflow of capital) 5 2000 01 02 03 04 05 06 07 Banks Life and non-life insurance companies Securities companies and others 08 p09 09/Q1 Q2 Investment trusts Banks' trust accounts Total Q3 pQ4 tril.3 –884.436.521.353.584.6 –1.9 –58.731.178.2 –2.555.7 –2. mainly due to purchases by banks.6 15.5 –901.1 10.

By industry.5 trillion yen in 2008. yen Net purchases (outflow of capital) –1 By quarter 0 1 Net sales (inflow of capital) 2000 01 02 03 04 05 06 07 08 p09 09/Q1 Q2 Q3 pQ4 2 b. From the second quarter.1 trillion yen in 2009 from net sales of 7. Inward portfolio investment (liabilities) (1) Inward investment in equity securities (liabilities) Inward investment in equity securities turned to net purchases (inflows) of 1. As a whole. foreign investors became net purchasers of Japanese equities. with the latter reflecting the gloomy outlook for the financial sector. down slightly from 0. inward investment in equity securities turned slightly positive in 2009. sales by foreign investors concentrated on equities of export-related firms such as those from the electrical machinery and banking industries. and securities and commodity futures industries were purchased. Figure 28: Outward Investment in Money Market Instruments –2 tril. equities of firms from the electrical machinery. when foreign investors became net purchasers. reflecting continued purchases by securities companies for sales to individuals. In the first quarter. banking.2 trillion yen in 2008. businesses. in the first quarter.1 trillion yen. 28 . sales of equity securities intensified reflecting concerns over the worsening business outlook for Japanese companies due to sluggish world economic conditions. reflecting expectations of financial stability and a global economic recovery. and institutional investors. amounted to 0.(3) Outward investment in money market instruments (assets) Net purchases (outflows) of money market instruments. reflecting expectations of a global economic recovery as well as subscriptions to publicly offered shares issued by Japanese companies seeking to increase their capital. In the second quarter.

The share in disinvestments is calculated using the amount of net purchases and sales by foreign investors. yen 15 10 5 0 –5 Net sales (outflow of capital) – 10 2000 01 02 03 04 05 06 07 08 p09 09/Q1 Q2 Q3 pQ4 Net purchases (inflow of capital) By quarter Figure 30: Inward Investment in Equity Securities: Investment and Disinvestment by Industry (Share in Percent) From January to March 2009 ns io at ic un t m en m s co pm ga ry le n ui d te ne s ti o eq an d hi al n rta er an ac ti c tio w po n s ta de eu lm ry io po ns al or g ra ac ca at c ic ne tra lt in sp m tri hi tri m rm ai nk ar nd an ec ec fo ac he et El Ba In Tr C M Ph R El La From April to December 2009 y er hin ac lm i ng i ca tr nk l ec Ba E es ur fut y di t ery mo m hin co ac M nd de sa t ra iti e le ur a c les Se nt ho me W ui p eq el on ste ati rt d o n sp na ls an Iro Tr i ca em Ch ns tio ic a un de mm ra co il t le ta te 0 Re nd na ti o ma or Inf Share in disinvestments S share in market capitalization 25 % 20 15 10 5 0 Share in investments S share in market capitalization 5 10 15 20 25 % Share in disinvestment Share in investment Note: The share in market capitalization is calculated using the average for the year of the end-of-month market capitalization of each industry on the First Section of the Tokyo Stock Exchange. 29 .Figure 29: Inward Investment in Equity Securities tril.

rising to 7. Foreign investors closed their positions during the first half of the year as yen funding conditions tightened. In addition. Mar.S. (2) Inward investment in bonds and notes (liabilities) Net sales of inward investment in bonds and notes reached a record high. May July Sept.4 trillion yen in 2008. foreign investors closed their positions in inflation-indexed bonds and floating rate bonds throughout the year. yen Net purchases (inflow of capital) By quarter 14 For developments in inward investment in bonds and notes. Nov. Dollar Basis) 110 100 90 80 70 60 50 2008/Jan." 30 . First trading day of 2008=100 First trading day of 2008=100 110 100 90 80 70 60 50 Nov. 09/Jan.Figure 31: TOPIX (U. Mar. May July Sept. "Developments in Inward Investment in Bonds and Notes and Transaction with Repurchase Agreements. Source: Bloomberg. Dec.14 Figure 32: Inward Investment in Bonds and Notes 15 10 5 0 –5 Net sales (outflow of capital) – 10 2000 01 02 03 04 05 06 07 08 p09 09/Q1 Q2 Q3 pQ4 tril. see BOX 5.7 trillion yen in 2009 from 4.

(3) Inward investment in money market instruments (liabilities) Net purchases (inflows) of Japanese money market instruments by foreign investors continued increasing slightly to 1. As a result.0 trillion yen in 2009. dollars through currency swaps saw an increase in foreign exchange gains on such swaps. In addition. yen 8 6 4 2 0 Net sales (outflow of capital) –2 2000 01 02 03 04 05 06 07 08 p09 09/Q1 Q2 Q3 pQ4 Net purchases (inflow of capital) By quarter 3. reflecting the appreciation of the yen against the U. net receipts from interest rate swaps by Japanese financial institutions increased as a result of the decline in short-term interest rates both at home and abroad. Japanese financial institutions that had raised U. losses exceeded gains from futures trading.5 trillion yen in 2008. down from 2. On the assets side.S.S. the second half saw net sales as financial markets stabilized. While purchases increased in the first half of the year reflecting a preference for liquid instruments after the financial crisis. 31 . which continued throughout the year.5 trillion yen in 2008. and this contributed to the decrease in overall net inflows. Financial derivatives Financial derivatives transactions accounted for a net inflow of 1. payments for realized losses on Japanese stock price index futures by Japanese securities brokers to foreign investors increased as Japanese stock prices recovered toward the middle of the year.8 trillion yen in 2009 from 1. Figure 33: Inward Investment in Money Market Instruments 10 tril. dollar. On the other hand.

5 1.5 0.0 2. Other investment Net inflows persisted.5 –2.5 trillion yen in 2008. as well as foreign currency funds -.0 1. in response to the improvement in the environment for raising foreign currency funds. 15 For details on the flow of funds including "other investments.0 –1. reflecting the fact that.both of which had previously been lent to overseas branches through interoffice accounts -. yen Inflow of capital Notional exchange gains or losses on currency swaps Option transactions Financial derivatives (total) Interest rate swaps Futures trading gains or losses Note: "Financial derivatives (total)" includes transactions other than those listed and therefore does not equal the sum of the individual categories of financial derivatives.Figure 34: Financial Derivatives 3. there continued to be net inflows associated with repurchase agreements into which foreign investors had previously entered to fund their JGB purchases.6 trillion yen in 2009 after 14. registering 13.0 –0. 4.5 2. yen Increase in assets/decrease in liabilities (outflow of capital) Net balance Others (net) Transactions with repurchase agreements (liabilities) Deposits (liabilities) 10 20 30 40 2000 01 Decrease in assets/increase in liabilities (inflow of capital) 02 03 04 05 06 07 08 p09 Interoffice accounts (liabilities) Deposits (assets) Transactions with repurchase agreements (assets) On the asset side. In addition.0 0.0 2004 05 06 Outflow of capital 07 08 p09 09/Q1 Q2 Q3 pQ4 By quarter tril. net inflows increased significantly.were withdrawn. yen funds used for currency swaps." 32 . because certain foreign investors reduced their positions in Japanese government bonds (JGBs).15 Figure 35: Other Investment (Assets and Liabilities) – 40 – 30 – 20 – 10 0 Interoffice accounts (assets) tril." see BOX 6 "Cross-Border Flows of Funds in 2009.5 –1.

33 . yen Increase in assets (outflow of capital) Decrease in assets (inflow of capital) July Sept. after net inflows in the previous year. May tril. 09/Jan. Mar. reflecting the improvement in the environment for raising U. Mar. resulting in net outflows in 2009. repayments of deposits from the Federal Reserve Bank of New York associated with the U.Figure 36: Other Investment Assets – 40 – 30 – 20 – 10 0 10 20 30 40 2005 06 07 08 p09 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 Decrease in assets (inflow of capital) tril. yen Increase in assets (outflow of capital) By quarter Interoffice accounts Deposits Total assets Transactions with repurchase agreements Others Figure 37: Interoffice Accounts (Assets) (Calculated on a Cumulative Basis since January 2008) – 15 – 10 –5 0 5 10 15 2008/Jan.S. dollars.S. dollar funds-supplying operations conducted by the Bank of Japan continued. pNov. Nov. On the liability side. May July Sept.

Mar. 34 . 3 months. 09/Jan.0 2. right scale) 4. Mar.0 0. pNov. yen Increase in liabilities (inflow of capital) % Public sector deposits LIBOR-OIS spreads (USD.0 3.Figure 38: Other Investment Liabilities 30 20 10 0 – 10 – 20 2005 06 07 Interoffice accounts Deposits Total liabilities Decrease in liabilities (outflow of capital) 08 p09 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 Transactions with repurchase agreements Others tril.5 0. tril.0 Note: LIBOR-OIS spreads reflect trends in counterparty risk in the interbank market and are regarded as an indicator of the funding environment for financial institutions.5 3. Nov. yen Increase in liabilities (inflow of capital) By quarter Figure 39: Public Sector Deposits (Liabilities) (Calculated on a Cumulative Basis since January 2008) 16 14 12 10 8 6 4 2 0 2008/Jan.5 2.0 1.5 1. May July Sept. May July Sept.

and technical services Computer and information services Net balance Merchanting and other trade-related services Financial services Insurance services Others tril. Developments in the Overseas Activities of Japanese Companies Reflected in "Other Services" Balance of payments statistics reflect various economic activities associated with the overseas presence of Japanese companies.0 3.0 1. In recent years. yen Credit 35 . yen 1. etc. Royalties and License Fees "Royalties and license fees" consists of "industrial processes.0 –1. Japan has registered a surplus in "fees for industrial property rights" and a deficit in "license fees. which include fees received by companies for the licensing of their technology (royalties). and technical services" by Japanese companies have declined due to sluggish world economic conditions." which are charges for the use of copyrighted materials such as computer software and animation.0 –3. and income earned from their overseas subsidiaries is recorded under credits in the "income" account. Figure 1 for Box 1: Balance of Other Services 4.0 2000 01 02 03 04 05 06 07 08 p09 Royalties and license fees Construction services Miscellaneous business. franchises." Figure 2 for Box 1: Royalties and License Fees 3 2 1 0 –1 –2 –3 Debit 2005 06 07 Fees for industrial property rights 08 License fees p09 tril. Receipts and payments of royalties and license fees as well as expenses for research and development and marketing are recorded under "other services.Box 1.0 2." A breakdown of "other services" shows that receipts of "royalties and license fees" and payments for "miscellaneous business. professional.0 –2.0 0. Exports and imports by Japanese companies are reflected in the "goods" account. and "license fees." (hereafter "fees for industrial property rights"). professional.

while receipts by the transport equipment industry have been the primary contributor to Japan's overall surplus in "royalties and license fees. receipts of "fees for industrial property rights" decreased by 23.0 –0.5 –1.0 tril.0 0.2 1.2 0. receipts from China increased along with the growth in their local production. By region.8 0. yen Figure 5 for Box 1: Number of Cars Manufactured Abroad by Three Major Japanese Companies million 4 3 0. reflecting the drop in overseas production by car manufacturers. figures for 2009 by region are estimated by the International Department of the Bank of Japan based on the actual figures for January through September." This reflects the fact that Japanese car manufacturers receive royalties from their overseas production subsidiaries in proportion to the volume of local production.By type of industry.5 2.6 percent.0 –1.5 2005 06 Transport equipment Electrical machinery Net balance Debit 07 08 Pharmaceuticals Others p09 tril. Note: Figures are estimated by the International Department of the Bank of Japan based on the financial statements of the companies. yen Credit Note: In this Box.5 0. in 2009.0 2005 06 07 08 p09 China North America European Union 0 2007 North America 08 European Union p09 China Note: In this Box.5 1. However.0 1. figures by industry are estimated by the International Department of the Bank of Japan based on actual figures of large-scale transactions reported. "fees for industrial property rights" received from North America and the European Union decreased significantly due to the fall in local production by Japanese car manufacturers.4 2 1 0. 36 .0 2. In contrast. Figure 3 for Box 1: Fees for Industrial Property Rights by Industry 3.6 0. Figure 4 for Box 1: Receipts of "Fees for Industrial Property Rights" by Region 1. receipts and payments of "fees for industrial property rights" have been roughly in balance for the electrical machinery industry.

and technical services" decreased by 14.5 – 3. accounting.0 – 3.) due to sluggish sales. while the resource development industries experienced a decrease in drilling and related costs as major projects moved from the exploration to the mining stage." and developments by industry therein show that the electrical machinery industry registered a decrease in sales and administration expenses (sales commission. professional.0 – 1. yen The category that saw the largest decrease in payments among "miscellaneous business. Miscellaneous Business. payments for "miscellaneous business." and "other business/professional services" such as mineral exploration/mining costs and sales and administration expenses. professional.5 – 1. Professional.0 – 2. Professional. professional. and Technical Services" 0.5 – 2. Figure 6 for Box 1: Breakdown of Payments for "Miscellaneous Business." "research and development. etc.5 2005 Research and development Advertising expenses Total 06 07 08 p09 Other business/professional services Legal. Figure 7 for Box 1: Payments for "Other Business/Professional Services" by Industry 300 bil.3 percent in total. and Technical Services "Miscellaneous business. and technical services" is "other business/professional services. In 2009. and other consulting fees tril. yen 200 100 0 2005 06 Resource development Transport equipment 07 08 p09 Electrical machinery Pharmaceuticals 37 .2. and technical services" include "advertising expenses.0 – 0.

yen 300 200 100 0 2005 06 07 Pharmaceuticals 08 p09 Electrical machinery Transport equipment 38 . payments made by the transport equipment and electrical machinery industries decreased due to the sluggish economic conditions.Developments in payments for "research and development" by industry show that while payments made by the pharmaceutical industry increased as companies proceeded with the development of new medicines in the United States and other countries. Figure 8 for Box 1: Payments for "Research and Development" by Industry 400 bil.

5 23.9 359.6 1368.6 81.4 Note: Figures for October through December 2009 by region are estimated by the International Department of the Bank of Japan based on the actual figures for January through September 2009.7 698.1 574.9 – 6.3 – 59.6 63.7 – 57.2 801.9 – 506.9 – 219.7 187.0 229.7 471.7 184.2 81.7 184.0 689.8 84.2 205.9 56.6 – 114.1 79.5 270.8 131.5 179.6 76.7 – 127.9 – 27.2 80.9 27.2 590.2 17.2 – 2.2 – 595.1 369.7 41.3 – 292.2 385.9 – 62.4 10.8 68.6 – 330.3 136.9 – 239.4 23.9 234.3 298.1 553.3 74.0 – 223.5 279.8 75.4 60. yen Total Credit Debit 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 p2009 677.2 164.9 – 83.6 790.6 30.3 – 52.6 654.4 134.3 101.7 959.4 614.3 North America Credit Debit 257.6 955.3 91.1 790.6 – 44.8 617.9 50.3 147.0 17.9 709.4 52.1 15.2 – 575.0 433.1 22.1 9.0 423.4 180.4 50.4 – 26.2 153.1 72.0 1342.1 14.0 – 158.9 11.0 108.1 195.6 – 133.4 23.3 29.6 618.2 40.1 319.5 80.9 – 80.8 167.5 1038.4 771.9 626.4 – 299.6 – 472.2 – 472.2 259.9 57.1 166.8 Asia Credit Debit 292.2 – 51.9 – 325.9 54.4 299.3 427.0 839.7 2204.1 – 302.1 49.1 – 530.6 – 61.8 514.1 605.0 309.4 1340.1 Net 276.8 913.3 – 184.6 557.0 933.1 94.2 Net 307.3 – 443.8 – 333.4 279.8 404.7 61.9 – 46.1 85.6 – 350.8 424.7 67.6 62.7 778.2 – 21. 39 .9 541.1 Net European Union Credit Debit 97.4 – 52.0 266.0 256.2 320.9 2539.3 – 236.8 – 22.3 1232.6 1171.8 240.5 188.8 – 417.4 1110.1 – 48.2 218.4 59.4 7.4 95.9 483.3 16.2 771.8 299.3 – 32.2 2.8 54.0 22.5 – 39.8 232.3 Net European Union Credit Debit 10.7 22.0 2450.3 331.9 349.0 1138.3 – 103.3 286.9 468.3 North America Credit Debit 13.1 666.1 94.8 8.3 725.4 – 138.8 12.(Reference) Industrial Property Rights and License Fees (By Region) Table 1 for Box 1: Fees for Industrial Property Rights.4 392.2 – 45.8 146.6 10.8 4.7 276.4 – 298.9 48.0 1198.0 Net 19.6 133.5 14.2 340.7 – 62.2 1840.3 821.4 255.0 – 263.9 174. yen Total Credit Debit 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 p2009 48.4 543.6 142.8 – 393.3 22.2 213.1 253.5 14.4 105.7 12.3 534.9 32.9 113.5 149.4 13.9 34.1 Net 19.5 729.5 86.0 – 209.5 255.1 341.6 405.5 110.0 159.6 15.1 – 201.8 979.3 – 54.8 232.2 Table 2 for Box 1: License Fees.0 480.1 726.1 204.6 650.9 98.2 76.3 165.0 157.7 1055.5 243.1 30.9 285.4 119.5 – 226.2 2.1 236.6 46.4 70.4 – 47.3 1138.5 41.2 93.9 61.9 797.5 53.9 – 7.6 29.1 258.3 151.9 871.8 303.1 780.2 409.5 – 85.4 224.3 22.2 343.2 82.1 831.5 303.7 231.1 1065.3 549.3 847.0 1872.8 – 213.7 – 68.6 74.1 59.1 1599.1 – 24.9 664.4 44.2 – 60.0 Net 760.2 99.7 270.7 138.1 – 40.1 859.2 414.7 252.0 68.4 900.4 74.1 590.0 59.6 148.0 19.4 39.6 671.3 942.7 209.8 568. by Region bil.1 2.4 16. by Region bil.1 Net Asia Credit Debit 22.0 737.6 – 259.7 – 91.1 676.9 75.4 871.7 – 40.9 796.6 915.2 512.3 239.4 50.5 26.2 – 210.1 1043.

This treatment is based on the assumption that the internal reserves are paid out to direct investors as dividends and then reinvested in the subsidiaries.5 Asia (excluding China) Total Table 1 for Box 2: Direct Investment Income Receipts (by Region) bil. Direct investment income includes not only dividends received by direct investors from their subsidiaries and interest accrued on loans between parent companies and subsidiaries.8 Note: In this Box.0 1.0 4. figures for 2009 by region are estimated by the International Department of the Bank of Japan based on the actual figures for January through September 2009.7 582.0 2.9 1. yen 3. but also reinvested earnings.0 – 0. Reinvested earnings are direct investors' shares of earnings that subsidiaries do not distribute as dividends but accumulate as internal reserves. yen By quarter (right scale) tril. reinvested earnings are recorded under the income account in the current account.6 +157.5 543.6 992.8 –258. and an offsetting entry with the opposite sign is made under direct investment in the capital and financial account. yen 2008 Total of which: North America European Union Asia of which: China 5.2 801. Features of the Income from Outward Direct Investment in 2009 Receipts of direct investment income recorded under the income account fell below the previous year's level for the second consecutive year. In the balance of payments.Box 2.0 2004 05 06 07 08 p09 08/Q1 Q2 North America Other countries Q3 Q4 09/Q1 Q2 Q3 pQ4 China European Union tril.0 5.674.0 0.3 424. 40 . as a result of the sluggish business performance of overseas subsidiaries reflecting the stagnant global economy.689.4 –489.033. receipts from China increased for the sixth consecutive year.3 Change from the previous year –753.482.0 0.5 1.0 2.5 0.280.0 – 1.6 1. Figure 1 for Box 2: Direct Investment Income Receipts (By Region) 6.0 –14. although receipts from the United States and the European Union decreased significantly from the previous year.5 p2009 4.5 2.6 1.0 1.0 3. However.

Figure 2 for Box 2: Direct Investment Income Receipts from Subsidiaries in the United States (By Industry) 1. in the balance of payments statistics. subsidiaries to pay themselves dividends upon the closing of their annual accounts. reflecting the fall in car sales.3 0. yen 0. receipts increased considerably in the first quarter of 2009 as parent companies drew down the retained earnings of their U. For example.5 tril.0 – 0. income receipts turned negative in the fourth quarter primarily reflecting the fall in the retained earnings of subsidiaries as a result of the payments of dividends in the first quarter. figures by industry are estimated by the International Department of the Bank of Japan based on actual figures reported.S. decreases in retained earnings of overseas subsidiaries are reflected with a time lag.9 0. Taking a more detailed look. On the other hand. yen By quarter (right scale) 1.5 0.6 tril.0 0.Direct investment income from subsidiaries in the United States Receipts in the transport equipment industry fell significantly from the previous year due to a drop in receipts from car manufacturers and wholesalers/retailers. Note: Due to limitations in the raw data used for the statistics. the decrease in retained earnings of overseas subsidiaries reflected in parent companies' financial statements for the fiscal year ending March 2009 is. divided into twelve equal portions that are recorded as negative income for the twelve months from September 2009. Dividends of less than 1 billion yen in direct investment income are classified as "others. which include car dealerships." 41 .0 0.3 Transport equipment Chemicals and pharmaceuticals Finance and insurance Total Wholesale and retail Electrical machinery Others Note: In this Box.5 2007 08 p09 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 – 0.

6 46.689.3 329.8 26.5 –7.7 +3.4 –55.9 +157.2 582.3 82.3 96.5 55.6 42 .3 23.5 –69.9 –31.0 Direct investment income from subsidiaries in Asia While receipts from Asia as a whole were almost unchanged from the previous year.8 –42.0 56.6 Change from the previous year –258.3 1.0 5. yen 2008 European Union of which: United Kingdom Belgium Sweden Germany France Netherlands 50. In addition.0 –61.4 361.9 801.5 509.8 +32.1 146.5 139.8 16.6 60. the business performance of transport equipment and electrical machinery industries also deteriorated due to the sluggish economic conditions and receipts from many countries decreased.7 Change from the previous year –14.8 –117.5 94.9 +147.0 222.6 p2009 543.0 73. Table 3 for Box 2: Direct Investment Income Receipts from Subsidiaries in Asia bil.8 98.7 60.674.5 296.2 –11.9 129.Direct investment income from subsidiaries in the European Union Receipts from the United Kingdom turned negative primarily because the retained earnings of overseas subsidiaries of financial institutions decreased following the turmoil in global financial markets in early fall 2008.1 –32.1 84.6 –19.7 223.3 161.3 p2009 1.8 –21. Table 2 for Box 2: Direct Investment Income Receipts from Subsidiaries in the European Union bil.0 –67.7 +1.2 80. yen 2008 Asia of which: China Thailand Philippines Singapore Vietnam Indonesia Taiwan Hong Kong India Malaysia South Korea 424. those from China rose significantly.6 57.9 41.6 –168.3 49.4 22.

yen Comparing the rates of return on direct investment across regions. but fell for all other major regions. reflecting the growth in local production and sales of cars and car-related parts by local subsidiaries of Japanese car manufacturers. Figure 3 for Box 2: Direct Investment Income Receipts from Subsidiaries in China (By Industry) 600 500 400 300 200 100 0 2007 Transport equipment Wholesale and retail Chemicals and pharmaceuticals 08 p09 Electrical machinery Finance and insurance Others bil.Looking at receipts from China by industry. those in the transport equipment industry have been increasing. 43 . Figure 4 for Box 2: Rate of Return on Outward Direct Investment (By Region) 20 % 15 10 5 0 2001 02 03 04 05 European Union Total 06 07 08 p09 North America China Asia (excluding China) Note: The rate of return on outward direct investment is calculated as direct investment income receipts in a year divided by the outward direct investment position as of the end of the previous year. the rate rose for China.

therefore.1 percent in 2006. results should be interpreted allowing for a margin error. Investments in corporate-type investment trusts and participation certificates are included in direct investment.jp/en/index. 44 . and 57. figures given in this Box do not match those in the main text (III B. (3) In addition. from which withdrawals are not deducted. Classification of Direct Investment by Type of Investment In order to clarify the purposes of direct investments.Box 3.or. investments that increase tangible fixed assets such as factories and other facilities in the ultimate investee enterprises. 47. Figure 1 for Box 3: Outward Direct Investment by Type of Investment (On a Transaction Value Basis) tril. on the Bank of Japan's web site (http://www. 40." that is. and (3) "investment for financial restructuring. 2006. yen 12 10 8 6 4 2 0 2005 06 07 08 Greenfield-type investment Participation certificates investment p09 M&A-type investment Investment for financial restructuring Investments of less than 10 billion yen Note: Investments of 10 billion yen or more accounted for 31. such as the acquisition of shares. 18 The gross value of equity capital transactions. investments that do not increase tangible fixed assets." that is. Direct investment). while some acquisitions by food and pharmaceutical industries were observed.6 percent in 2008. 1. 70. investments used to repay debts. (2) "M&A-type investment. see "Japan's Balance of Payments for 2005" released on August 18.16 17 To this end.boj. Features of Outward Direct Investment in 2009 (1) Outward direct investments made by Japanese companies (transaction value)18 decreased by about 30 percent on a year-on-year basis reflecting the global economic slowdown. (2) Regarding M&A-type investments. 16 For details of the definitions of types of investment. 17 It should be noted that because the analysis in this Box focuses on investments of at least 10 billion yen in equity capital.htm). it is useful to focus on how the invested capital is ultimately used. direct investments made in 2009 are classified into the following categories: (1) "greenfield-type investment.4 percent (on a transaction value basis) of total outward direct investment in 2005.7 percent in 2007." that is.8 percent (preliminary) in 2009. investments in participation certificates (issued by overseas SPCs for the purpose of boosting capital into Japanese financial institutions) remained at a high level. capital participations by financial institutions and investments in the mining industry by trading companies decreased significantly on a year-on-year basis.

7 percent in 2007. Figure 2 for Box 3: Inward Direct Investment by Type of Investment (On a Transaction Value Basis) 5 4 3 2 1 0 2005 06 M&A-type investment Investment for financial restructuring 07 08 p09 Greenfield-type investment Investments of less than 10 billion yen tril. (2) The transaction value of M&A-type investments dropped significantly due to a lack of the kind of large-scale investments by financial institutions with the aim of expanding their business seen in the previous year. reflecting capital injections in a wide range of industries including finance and insurance.6 percent in 2008. and 52. 45 . 67.9 percent (on a transaction value basis) of total inward direct investment in 2005. (3) While the transaction value of investments dropped in general. investments for financial restructuring remained at the previous year's level. and electrical machinery. 45.7 percent (preliminary) in 2009.Features of Inward Direct Investment in 2009 (1) Inward direct investments by foreign companies (transaction value) decreased by approximately 60 percent from the previous year.0 percent in 2006. yen Note: Investments of 10 billion yen or more accounted for 35. 56.

(e) Investment for financial restructuring . . . it is used for the acquisition of shares already issued by an existing enterprise). . It is a first-time investment by a direct investor in a direct investment enterprise. enterprise. . .(Reference) Definitions of the Classification of Foreign Direct Investment by Investment Type Type Definition (a) Initial M&A-type investment . . and . (c) Additional M&A-type investment . the invested capital is used for the by a direct investor in a direct acquisition of tangible fixed assets of an investment enterprise. the invested capital does not increase the asset base of the enterprise and is used for debt repayment. 46 . . (b) Initial greenfield-type investment . (d) Additional greenfield-type investment It is not a first-time investment . . . . and . . the invested capital is used for the acquisition of shares issued by a newly established enterprise. the invested capital is used for the acquisition of shares issued by an existing enterprise. the invested capital is not used for the acquisition of tangible fixed assets of an enterprise (or. . . .

Figure 1 for Box 4: Outward Portfolio Investment by Investment Trusts (Equity Securities and Bonds and Notes) – 12 – 10 –8 –6 –4 –2 0 2 4 6 tril. However. Individual investors' risk appetite declined considerably. Furthermore. yen –6 –5 –4 –3 –2 –1 0 1 2 3 Net sales (inflow of capital) 2005 06 07 08 p09 07/Q1 Q2 Q3 Q4 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 Equity securities Total Bonds and notes The regional composition of purchases and sales by investment trusts in 2009 shows that the share of investments in the BRICs. and the Cayman Islands increased as a result of active investments in those regions made by newly established emerging market funds.Box 4. as individual investors' confidence improved somewhat. equity prices plunged globally as the subprime mortgage problem deepened and the yen started to appreciate. and net purchases of foreign equity securities and bonds and notes by investment trusts dropped significantly in and after the fourth quarter of 2007. net purchases turned negative. outward portfolio investment turned positive again in the second quarter. after the failure of Lehman Brothers. buoyed by the global recovery in equity prices. The following is a summary of trends in outward investment in equity securities and bonds and notes by region in 2009. yen By quarter (right scale) Net purchases (outflow of capital) tril. individual investors started to purchase newly established funds. 47 . Against this background. in the fourth quarter of 2008. After the beginning of 2009. Oceania. concentrating on the United States and the European Union against the background of rising foreign equity prices and the depreciation of the yen. in the fourth quarter of 2007. Recent Developments in Outward Portfolio Investment by Investment Trusts Outward portfolio investment (in both equity securities and bonds and notes) by investment trusts recorded significant net purchases from 2005 through 2007. while investments in the United States and Europe contracted.

4 – 1. and funds investing in equities of a particular sector such as the financial and pharmaceutical industries. 1.4 BRICs Oceania Western Europe Others Note: Regional figures are estimated by the International Department of the Bank of Japan.which picked up from the fourth quarter of 2008 against the background of the fall in global equity prices and the appreciation of the yen following the financial crisis -.2 – 1. However. primarily because purchases by balanced investment funds of U. yen Net purchases (outflow of capital) By quarter (right scale) tril.0 1.0 – 6. and European equities -.0 – 3.continued.Figure 2 for Box 4: Regional Breakdown of Purchases and Sales by Investment Trusts (Equity Securities and Bonds and Notes) Purchases 100 80 60 40 20 0 2005-07 North America BRICs Oceania 09 Western Europe Cayman Islands Others % 100 80 60 40 20 0 2005-07 North America BRICs Oceania 09 Western Europe Cayman Islands Others % Sales Note: Regional figures are estimated by the International Department of the Bank of Japan.S.0 – 0.0 – 5.0 0.S. REIT funds investing in developed countries. In the second and third quarters. 48 .8 – 0.6 – 0.0 – 1.4 – 0.2 0.0 0. Figure 3 for Box 4: Outward Investment in Equity Securities by Investment Trusts (By Region) – 7. and European equities turned negative as a result of profit-taking and a shift by individual investors to currency-selective-type investment trust funds (assets purchased by currency-selective-type investment trust funds are recorded under "outward investment in bonds and notes").2 0. while purchases of BRIC equities continued in the fourth quarter.0 – 4. yen – 1. net purchases of U. Outward Investment in Equity Securities In the first quarter of 2009. primarily due to investments made by newly established funds whose holdings included BRIC equities.0 2005 06 07 Net sales (inflow of capital) 08 p09 08/Q1 Q2 Q3 Q4 09/Q1 Q2 North America Total Q3 pQ4 tril.0 2. net purchases increased.0 – 2. net outward investment in equity securities turned positive.

0 2.2. in addition to the investment yield on the underlying asset. 49 .0 – 8.0 1.0 – 0. with funds flowing mainly to the Cayman Islands. treasuries and European government bonds and also because some funds switched from foreign bonds to JGBs. and Oceania. yen – 2.5 0.0 – 1.0 2005 06 07 08 p09 08/Q1 Q2 Q3 Q4 09/Q1 Q2 Q3 pQ4 Cayman Islands Western Europe North America Oceania Central and South America (excluding Cayman Islands) Others Total Net sales (inflow of capital) By quarter (right scale) tril.0 4.0 0.0 – 2.5 – 2. With interest rates in developed countries low.0 0. 19 Many of these funds invest in mother funds registered in the Cayman Islands.0 6. yen Net purchases (outflow of capital) tril. from the second quarter.0 – 6. other Central and South American countries. searching for higher returns.0 – 4. However. Similarly.5 Note: Regional figures are estimated by the International Department of the Bank of Japan. mainly because individual investors cancelled contracts with investment trusts investing in U. seek to earn currency hedge premiums on high-yielding currencies.19 which.5 – 1. Figure 4 for Box 4: Outward Investment in Bonds and Notes by Investment Trusts (By Region) – 10. net investment in bonds and notes by investment trusts turned negative. net investment in bonds and notes turned positive again and continued to increase. Outward Investment in Bonds and Notes In the first quarter of 2009. individual investors. there were substantial purchases of funds investing in bonds in countries with high-yielding currencies such as emerging and commodity exporting countries. started to opt for currency-selective-type investment trust funds.5 1.S.

A major European bank stopped accepting customers' cancellation of contracts with some of the funds under its management. Holding ratio Trading ratio Note: The letters in the chart correspond to the following events: a. b.Box 5. c. investment bank went effectively bankrupt. investment bank went bankrupt. participants of the Japanese bond market noted that highly leveraged transactions by foreign investors remained particularly slack. 06/Jan. 50 . 25 35 Figure 2 for Box 5: Percentage of the Value of Japanese Bonds Traded by Foreign Investors % b. Dec. pDec. A major U. b. In addition. Developments in Inward Investment in Bonds and Notes and Transaction with Repurchase Agreements With tensions in global financial markets easing and the funding environment starting to stabilize after the beginning of 2009. net inward investment in bonds and notes remained negative almost throughout until the end of 2009. 08/Jan.S. Japan Securities Dealers Association (percentages do not include trading by bond dealers). The above-mentioned funding activities by foreign investors are also reflected in the balance of payments statistics. 0 2005/Jan. 09/Jan. the share of trading volume in Japanese bonds accounted for by foreign investors decreased significantly (Figure 2 for Box 5). 09/Jan. when the funding environment further stabilized (Figure 1 for Box 5). 20 10 10 5 0 2005/Jan. 06/Jan. Commenting on this situation.S. 30 30 20 15 a. A representative investment strategy that foreign investors had been pursuing was to raise funds far in excess of their own capital and seek to make large profits by taking advantage of movements of bond prices toward their theoretical value when these were over. Sources: Ministry of Finance. c. On the other hand. 07/Jan. yen Increases in the value of excess acquisitions (inflow) 40 a.or undervalued relative to their theoretical value or of the widening or narrowing of price differences among bond issues that move in parallel (for details on some of the strategies pursued by foreign investors. A major U. see "Japan's Balance of Payments for 2003. 08/Jan." Box 7). 07/Jan. net inward investment in equity securities and net outward portfolio investment through investment trusts also resumed. c. Figure 1 for Box 5: Inward Investment in Bonds and Notes (On a Cumulative Basis from January 1996) 50 tril.

repurchase agreements are considered to have a close association with leverage trends. such as borrowing and bond issuance." based on reports made by resident counterparties.declined as part of the continuing global deleveraging. Financing Through Repurchase Agreements There are several methods that investors can use to raise funds. often use repurchase agreements (repos) in order to increase their leverage. both inward investment in equity securities on which adequate returns were expected with relatively low leverage. For such a transaction. but have plunged since 2008 (Figure 3 for Box 5). As a result. and this seems to have been a cause for the slowdown in inward investment in bonds and notes by foreign investors. when raising funds. On the other hand. July pDec. which is generally used to increase leverage. c. Under a repurchase agreement. and outward portfolio investment by individual investors with ample funds at hand have started to show signs of recovery. Figure 3 for Box 5: Transactions with Repurchase Agreements (Assets) (On a Cumulative Basis from January 1996) – 25 tril. the investor can raise investment funds in multiples of his/her funds at hand to build up large positions. enters into the repurchase agreement as a buyer to satisfy the investor's demand for funds. A repurchase agreement is one such method. July 09/Jan. The global risk aversion that arose after the financial crisis gradually eased throughout 2009. Therefore. – 15 – 10 –5 0 2005/Jan. On the other hand. which is generally a securities company. July 08/Jan. b. mostly Japanese securities companies. 51 . yen Increases in balance (higher leverage) – 20 a. securities are purchased outright and are sold with a buy-back agreement at the same time. July 07/Jan. Through a repurchase agreement." a subcomponent of "other investment. the investor only needs to have in hand the amount of funds equal to the haircut (collateral margin) required to sell the securities under the repurchase agreement. "Transactions with repurchase agreements (assets)" had been at a high level from 2005. the supplier of the funds. the use of investment strategies mentioned above -. Note: Including transactions relating to foreign currency-denominated securities. the amount of which is insignificant.which require high leverage to yield adequate returns -. Foreign investors' repo transactions are reflected in the balance of payments statistics under "transactions with repurchase agreements (assets).Foreign investors. July 06/Jan.

some foreign investors started to invest in risk assets again and net investment in Japanese equity securities by foreign investors turned positive (inflow). Interoffice accounts (assets) 20.3 Direct investment –5.1 Japan Overseas Banks.7 Inward investment in equity securities 1.9 Outward portfolio investment –16. In addition.4 BOJ U.7 FRBNY Notes: 1.8 BOJ U. The figures for the U.3 Direct investment –6.3 Inward investment in bonds and notes –7.Box 6. 2. dollar-yen swaps 11. 【Sept.S.S. 2008】 Current account surplus 3. Unit: trillion yen.4 Inward investment in equity securities –4. Interoffice accounts (assets) –7. dollar-yen swaps –11. etc. As conditions for obtaining U.–Dec. dollar-yen swaps are based on public sector deposits (including deposits other than those of the Federal Reserve Bank of New York [FRBNY]). The arrows indicate the net flow of funds (inflow/outflow).5 Overseas Banks.0 Outward portfolio investment –4. etc. Cross-Border Flows of Funds in 2009 Developments in major balance of payments items during 2009 indicate that the tensions that had heightened sharply in the financial markets since the fall of 2008 have eased. 52 . dollar funds improved. albeit by a small margin.3 Japan Inward investment in bonds and notes –6. banks started to withdraw funds (inflow) they had supplied to their overseas branches through interoffice accounts.8 FRBNY 【2009】 Current account surplus 13. Underlined items indicate a net reduction in assets or liabilities.S.S.

8 Income surplus 16. etc.7 FRBNY Change in reserve assets –2. 【2007】 Goods and services surplus 9. etc. the surpluses in the goods and services and income accounts decreased significantly.3 Direct investment –5.0 Japan Outward portfolio investment –12. Also.However.5 53 .3 Inward investment in bonds and notes –7.9 Outward portfolio investment –16.4 Japan Overseas Banks.S.5 Inward investment in equity securities 5.1 Interoffice accounts (assets) 20.1 Income surplus 12. 【2009】 Goods and services surplus 2. continued. regarding inward portfolio investments.9 Inward investment in bonds and notes 10. the value of Japanese equity securities purchased by foreign investors was still lower than in 2007 and the net sale of bonds and notes.3 Direct investment –6. which was already seen in 2008.4 Interoffice accounts (assets) –9. BOJ U.7 Inward investment in equity securities 1.5 Change in reserve assets –4. dollar-yen swaps –11.3 Overseas Banks.

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