In the last several years, Japan has developed a growth mechanism based on increases in global demand – especially for automobiles and capital equipment – but decreases in exports of these goods, due to a sharp deterioration in world economic conditions, have led to a substantial decline in production, income, and labor. The decline was also augmented by increased tightness in Japan's financial conditions.
Indeed, even if there is no such mismatch at present, the levels of both FX assets and liabilities are often large relative to GDP, which means that any changes in valuations can quickly generate important swings in a country’s net international investment position.