C.  Gradually expanding portfolio investment between Japan and emerging Asia  I would now like to examine recent trends in cross-border portfolio investment. At one time, the securities market in emerging Asia was underdeveloped, and the banking sector dominated the financial system. This situation has changed in recent years with the rapid growth of the securities market.
Regarding bond markets, it used to be the case that Asian economies had difficulty in issuing domestic currency-denominated bonds internationally, because foreign investors did not want to bear exchange rate risks and thus preferred U.S. dollar-denominated assets. This prevented the market from developing.