The Bank of Japan has warned that the growing influence of investment funds — particularly foreign hedge funds and private equity firms — could heighten risks across Japan’s financial system, according to a report by Reuters.
The warning comes even the sector continues to play an increasingly important role in capital formation and corporate restructuring.
In remarks published Friday, BOJ executive director Kazushige Kamiyama said non-bank financial intermediaries (NBFIs) are becoming more prominent in Japan’s markets, despite accounting for a smaller share of financial assets than in other major economies. NBFIs represent around 30% of Japan’s total financial assets, compared with roughly 50% globally.
Kamiyama noted that overseas hedge funds and private equity managers have expanded their presence in Japan in recent years, with PE firms taking a more active role in M&A activity and business restructuring initiatives.
While these investors support economic growth by providing risk capital, Kamiyama cautioned that their activities could also amplify market stress during periods of volatility.
He warned that rapid shifts in allocations by global hedge funds could intensify swings in Japanese equity and bond markets, while increased lending exposure from domestic financial institutions to foreign investment funds may create channels for overseas shocks to spill into Japan’s financial system.
Kamiyama also stressed the need for closer coordination between regulators and central banks as NBFIs continue to expand cross-border operations and deepen their global market footprint.
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