By Leika Kihara
TOKYO, May 15 (Reuters) – Investment funds play a key role in supplying risk capital but can also pose potential risks to a country’s financial system, Bank of Japan executive director Kazushige Kamiyama said in a speech released on the bank’s website on Friday.
Foreign hedge funds and private equity funds have increased their presence in Japan even though non-bank financial intermediaries (NBFI) account for just 30% of total financial assets in the country, lower than the global share of 50%, Kamiyama said.
In recent years, private equity funds have increasingly facilitated business restructuring and mergers and acquisitions in Japan, he added.
While NBFIs play a role in promoting economic growth by supplying risk capital, they can pose “potential risks to the entire financial system,” Kamiyama said in the speech, which was delivered at a seminar on Thursday.
“A sudden shift in capital movements by global hedge funds could exacerbate price volatility in bond and stock markets,” he said.
As Japanese financial institutions increase lending to foreign investment funds, there is a risk external shocks could spread instantaneously to domestic markets, Kamiyama said.
“As NBFIs expand their global activities, cooperation among central banks and supervisory authorities across jurisdictions is becoming increasingly important,” he said.
(Reporting by Leika Kihara; Editing by Jacqueline Wong and Sam Holmes)
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