BOJ warns of financial system risks from investment fund activity

By Leika Kihara

TOKYO, ‌May 15 (Reuters) - ​Investment ​funds play a key role in supplying risk capital but can also pose potential ‌risks to a country's financial system, Bank ⁠of Japan executive director Kazushige Kamiyama said in a speech ‌released on the bank's ‌website on Friday.

Foreign hedge funds and private equity funds have increased their presence in Japan even ​though non-bank financial intermediaries (NBFI) account for just 30% of total financial assets in the country, ⁠lower than the global share of 50%, Kamiyama said.

In recent years, private ​equity funds have increasingly facilitated business restructuring and mergers and acquisitions in Japan, he ​added.

While NBFIs play a role ‌in promoting economic growth by supplying risk capital, they can pose "potential risks to ⁠the entire financial system," Kamiyama said in the speech, which was delivered at a seminar on Thursday.

"A ⁠sudden shift in capital movements by global hedge funds could exacerbate ​price volatility in bond and stock markets," he said.

As Japanese financial institutions increase lending to foreign investment funds, there ‌is a risk external shocks could spread instantaneously to domestic markets, Kamiyama said.

"As ‌NBFIs expand their global activities, cooperation among central ⁠banks and supervisory authorities ‌across jurisdictions is ​becoming increasingly important," he said.

(Reporting by Leika Kihara; Editing by Jacqueline Wong and Sam ‌Holmes)

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