Bank of Japan board member Kazuo Ueda stated in a speech published on the central bank's website on Friday that investment funds play a crucial role in providing risk capital but may also pose potential risks to a country's financial system. Ueda pointed out that although non-bank financial intermediaries (NBFI) account for only 30% of Japan's total financial assets—below the global average of 50%—investments by foreign hedge funds and private equity funds in Japan are steadily increasing. He added that in recent years, private equity funds have played an increasingly significant role in corporate restructuring and mergers and acquisitions within Japan. Speaking at a seminar on Thursday, Ueda noted that while non-bank financial institutions contribute to economic growth by providing risk capital, they could also "pose potential risks to the entire financial system." He stated, "Sudden shifts in global hedge fund capital flows could amplify price volatility in bond and stock markets." Ueda indicated that as Japanese financial institutions increase lending to foreign investment funds, the risk remains that external shocks could rapidly spread to domestic markets. He emphasized, "As non-bank financial institutions expand their global operations, cooperation among central banks and regulatory authorities becomes increasingly important."
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