ARE JAPANESE INVESTORS TAKING THEIR MONEY HOME

Only recently has Japan become the world's largest investor. Yet stories of investors taking their money home already have developed. Are Japanese investors taking their money home? Would it matter? To answer these questions, one must examine the economic, regulatory, and political motivations guiding Japanese investments. So far, shifts in the flows of funds have not been sensational, but by no means should one dismiss the shifts as irrelevant. A tightening of liquidity at home and a pricking of the bubbles in Japan's equity and land markets have altered the calculus of returns on overseas investments. Thus, the annual increments to Japan's overseas holdings, which already had shrunk in 1990, should stay low in the coming years. The impact on global financial markets will depend crucially on whether new flows from Japan fall faster than new demands for funds outside of Japan.