A huge and growing amount of the world's savings is coming to the U.S. attracted by low inflation, brisk economic growth, and deep, open markets. Much of it is Japanese -- hearkening back to the late 1980s when Japanese investors bought up prized properties across the U.S. that triggered controversy -- plus an increasing amount is from China. This time however, the funds are unrelated to political contributions, and directed to the markets.
In 1996, foreign investors made net purchases of $408 billion of U.S. financial assets, nearly triple the 1993 level. More than $250 billion of that went into Treasury securities; another amount involved corporate debt and government-agency bonds. Just $13 billion of net purchases went into U.S. stocks. According to deputy Treasury secretary Lawrence Summers, "Two main forces driving the flow of capital into the United States are international diversification and the attractiveness of investment opportunities in the U.S. Both are benign."
Japanese households alone hold financial assets approximating more than $10 trillion, according to Japanese government data. That is more than $70,000 a person (not adjusted for debt). But on passbook savings, the return is less than 1% a year. Stemming from a demand for better returns, Japanese stockbrokers do a brisk trade of moving clients into 6% U.S. bonds, despite any exchange-rate risk.
But with a recent slump of the U.S. dollar, which has fallen nearly 10% against the Japanese yen (at the time of this writing) the recent buying binge has been somewhat curtailed. Takanobu Igarashi, a senior economist at Sanwa Bank in New York says Japanese money managers consider the yen-dollar currency risks minimal today, and it has been indicated by a senior foreign-exchange manager at Chase Manhattan Bank in Tokyo that Japanese funds are ready to enter the U.S. market, once people think the dollar has hit bottom.
-- Posted the week of May 19, 1997
Source: The Wall Street Journal The Outlook May 19, 1997 pg. A1