The slow growth of the Japanese economy has exacerbated capital outflows, and the yen continues to weaken.

Capital is rapidly flowing out of Japan due to slow economic growth, exacerbating the pressure on the depreciation of the yen. It is reported that Japan reported a current account surplus of 8.97 trillion yen (approximately $575 billion) in the third quarter, but this surplus was offset by outflows from direct investment and securities investment. As traders unwind yen-funded carry trades, the yen to dollar exchange rate reached a 14-month high in September, but has since fallen by about 10%. Many yen observers believe that the significant interest rate differential between Japan and the United States is the main reason for the continued weakness of the yen, especially considering the policies that President-elect Trump may implement which could reignite inflation and potentially result in the Federal Reserve maintaining high interest rates. However, another less obvious but equally influential factor is the flow of trade and investment in and out of Japan. Shusuke Yamada, head of currency and rate strategy at Bank of America Tokyo, stated: "Outflows from direct investment and securities investment are offsetting the current account surplus, limiting the potential gains of the yen. Considering that most of the surplus comes from primary income and is reinvested abroad, focusing solely on the current account balance can be misleading." The current account measures exports, imports, and other cross-border flows including wages and investment returns. Japan recorded a record surplus of 12.2 trillion yen in primary income in the third quarter, mostly from investment returns. This offset the deficit in goods and services, increasing the current account surplus. Hideki Shibata, senior fixed income and foreign exchange strategist at Tokai Tokyo Intelligence Laboratory Co., said: "The trade deficit is causing the yen to be sold off to meet the demand for foreign currencies. This trend is likely to continue." In addition to portfolio flows, the data also reflects direct investment, funds that are brought into Japan by companies for business purposes. Among major economies, Japan attracts the least amount of direct investment. According to IMF data, as of the end of June, foreign direct investment in Japan accounted for 8.3% of GDP, the lowest among the top 20 economies in the world. In comparison, the UK's ratio is 99% and the US's ratio is 57%. Furthermore, almost every quarter since 1996, the outflow of direct investment from Japan has exceeded the inflow. Tsuyoshi Ueno, senior economist at NLI Research Institute, said: "The barriers for foreign companies to enter Japan are high. The business environment is complex for overseas companies starting up in Japan, and with Japan's low growth rate, the market will not expand." The Bank of Japan estimates that Japan's potential economic growth has been stagnant for the past 20 years, which supports the intensification of capital outflows. Despite attracting more securities investment - 90% of GDP, Hirofumi Suzuki, chief forex strategist at Sumitomo Mitsui Bank in Tokyo, pointed out that these inflows have not led to yen appreciation because they are hedged against currency fluctuations. He said: "Most of the inflows are also speculative, without an increase in demand for long-term holding." Due to Japan's interest rates being significantly lower than those of other economies, hedging against the weakening yen can bring positive returns to foreign investors unless the yen significantly strengthens to offset the interest rate differential. Hideki Shibata said: "There are few opportunities for domestic investment in Japan, meaning that most overseas dividends and redemptions are reinvested."