Investment funds can pose risks to the financial system, the Bank of Japan (BOJ) warned. Executive Director Kazushige Kamiyama said foreign hedge funds and private equity funds have increased their presence in Japan.
Non-bank financial intermediaries (NBFI) account for only 30% of total financial assets in Japan, below the global share of 50%.
Private equity funds have recently facilitated business restructuring and M&A in Japan, Kamiyama noted.
While NBFIs promote economic growth by supplying risk capital, they also pose potential risks to the entire financial system.
"A sudden shift in capital movements by global hedge funds could exacerbate price volatility in bond and stock markets," he said.
Increased lending by Japanese financial institutions to foreign investment funds risks instantaneous spillover of external shocks to domestic markets.
Kamiyama stressed the importance of cooperation among central banks and supervisory authorities across jurisdictions.
