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Japan investors shy away from Cayman Islands

20160615_Cayman_taxhaven_article_main_imageBy YOICHI NAGAI, NQN senior staff writer From Nikkei Asian Review

TOKYO — Japanese investors are beginning to pull their money out of the Cayman Islands, one of the world’s major tax havens. That much is clear. The reasons for the outflow are less certain.

The balance of securities investment in the Caymans — acquisitions minus dispositions — came to minus 939.2 billion yen ($8.86 billion) in April, the largest figure since 2005, according to balance of payments data. For the first time in two years and two months, investors unloaded more than they acquired.

Equities and investment fund shares accounted for the bulk of the net outflow — 926.7 billion yen. Dispositions of such instruments alone came to 2.08 trillion yen in April, up 180% from the 747.1 billion yen in March and 180% from a year earlier.

This suggests the shift cannot be chalked up to seasonal factors.

All about anonymity?

According to the Bank of Japan, the balance of securities investment in the Caymans stood at 74 trillion yen as of the end of last year, up 110% over the past decade. That total was second only to the 165 trillion yen held in the U.S. and far larger than the figures for the U.K. and France, which were in the vicinity of 20 trillion yen each.

Equities and investment fund shares accounted for 54 trillion yen — 53 trillion yen in the latter.

Japanese institutional investors and wealthy individuals head to the Caymans for tax breaks. But in April, a trove of leaked documents known as the Panama Papers revealed how the rich and powerful hide their wealth in just such tax havens. Eli Owaki, an economist at the Japan Center for International Finance, suggested investors who value anonymity may be withdrawing their money in preparation for tighter regulations.

“The rise of highly anonymous virtual currencies has made tax havens less important,” Owaki added. “Capital outflows from such havens will likely continue amid growing political and economic uncertainty.”

Some experts are not convinced, though. Since most of the funds that flow from Japan to the Caymans are legal, skeptics argue the anonymity factor is not enough to explain the scale of the withdrawals.

IMAGE: A protestor throws fake money into the air as she relaxes on a deckchair in an interactive, tropical tax haven beach in Trafalgar Square in London, May 12. © AP

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