New Japanese Investment in the U.S. Is Expected to Slow, Shift From Bonds
New Japanese investment in the U.S. will slow from last year's record pace but will remain significant, analysts say. Japanese investors also are expected to accelerate the diversification of their U.S. holdings away from bonds and into equities and real estate.</br></br>The major factors behind the expected shifts are the weak U.S. dollar and relatively low U.S. interest rates.</br></br>Salomon Brothers Inc. projects that private Japanese investors will purchase the equivalent of about $115 billion of foreign assets in 1987, down from a record $132.4 billion last year. Much of these funds are either invested in the U.S. or in Eurodollar bonds. The New York-based investment firm estimates that 85% to 90% of Japanese purchases of foreign stock and 70% of the fixed-income securities purchases have been dollar-denominated, including U.S. government, agency and corporate debt and Eurodollar securities.</br></br>A slowdown in new Japanese investment in the U.S. could have far-reaching implications. Foreign purchases of U.S. government and other dollar-denominated investments have helped fund the U.S. budget deficit, keep U.S. interest rates low and prevent the dollar from crashing. And the Japanese have played a leading role.</br></br>Japan's long-term foreign assets at the end of last year totaled nearly $397 billion -- higher than the Organization of Petroleum Exporting Countries' peak holdings of $380 billion in 1983. Japanese trading in U.S. Treasury securities climbed fivefold in the past 17 months and now accounts for as much as 15% of daily turnover, according to Michael R. Rosenberg, a vice president at Merrill Lynch & Co. "They are an important force in our market and are going to remain such," he adds.