Still Below its Potential as a Global Financial Centre
Japan has endeavoured to develop its capital Tokyo as one of the top global financial centres. Japan’s advantages are the sheer size of its economy (the third largest in terms of gross domestic product), the status of the Japanese yen as the third international currency after the United States dollar and the euro, and large financial and capital markets with abundant capital. Tokyo has the potential to become a regional financial centre that transfers excess capital to emerging Asian economies. This vision has not fully materialized because Japan’s financial investment continues to be destined towards the United States and Europe and in the form of relatively safe debt securities. Moreover, Japan’s capital remains largely risk-averse, contributing to lack of diversity in domestic capital markets and limited provision of risk capital to the world. This chapter takes an overview of Japan’s financial and capital market developments.
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