Japanese capital outflows

Abstract

This paper investigates the causes of large Japanese long-term capital outflows in the 1980s. It is found that exchange rate expectations and international interest rate differentials explain part of the capital outflows until the mid 1980s, but not all. More significant were relaxation of capital controls and the rapid growth of institutional investors. Since the mid 1980s exchange rate expectations have exerted negative impacts on capital outflows. These have been more than offset by further relaxation of capital controls in 1986. However, the effects of deregulation are now close to over. Throughout the period increases in domestic wealth have been an important cause of capital outflows.