Bank of Japan board member Kazushige Kamiyama stated in a speech published on the central bank's website on Friday that investment funds play a crucial role in supplying risk capital but may also pose potential risks to a country's financial system. Kamiyama noted that while non-bank financial intermediaries account for only 30% of Japan's total financial assets, below the global average of 50%, the scale of operations by overseas hedge funds and private equity funds in Japan continues to expand. He added that in recent years, private equity funds have played an increasingly prominent role in corporate restructuring and merger and acquisition transactions in Japan. The speech was delivered at a seminar on Thursday. Kamiyama pointed out that although non-bank financial intermediaries support economic growth by providing risk capital, they could also introduce potential risks to the entire financial system. He stated: "A sudden shift in capital flows from global hedge funds could intensify price volatility in bond and stock markets." Kamiyama also mentioned that as Japanese financial institutions increase lending to overseas investment funds, there is a risk that external shocks could be transmitted instantly to Japan's domestic market. He emphasized: "As non-bank financial intermediaries expand their global operations, collaboration between central banks and cross-border regulatory agencies is becoming increasingly important."
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