By SHOHEI MAKIUCHI From The Asahi Shimbun

Japanese investments in financial securities in the Cayman Islands, a British overseas territory in the Caribbean Sea known as a major tax haven, have hit a record high, according to the Bank of Japan.

Those investments stood at a total value of 74.4 trillion yen (about $675 billion) as of the end of 2015–up about 20 percent from a year ago–the BOJ’s statistics on international balance of payments showed when they were released on May 24.

The amount was also more than double the corresponding figure at the end of 2005, and the largest ever since 1996, when comparative data became available.

The figure represents the amount of money invested by Japanese companies, institutional investors and wealthy people in stocks and bonds of companies set up in the Cayman Islands or in investment funds established there.

The Cayman Islands is one of Japan’s two most favored overseas places for investments in securities, second only to the United States, where 165 trillion yen is invested, mainly used to buy U.S. government bonds.

The 74.4 trillion yen figure is larger than the corresponding figures invested in France and Britain, the BOJ statistics showed.

The Cayman Islands, with a population of about 60,000, is noted for the fact that neither corporate taxes nor taxes on capital gains, which are benefits from the rise in values of financial assets, apply there.

However, another factor important in the financial world is that it is easy to set up subsidiaries or funds, which gather investments, with a high level of anonymity on the islands.

Regulations on the establishment and operations of companies or funds in the Cayman Islands are even looser than those on other tax havens, such as the British Virgin Islands. Therefore, it is said that it is possible to create financial products with high yields there.

Consequently, companies and asset management firms throughout the world, including those in Japan, have set up investment funds or subsidiaries for fund procurement in the Cayman Islands.

They have created financial products, using real estate and other assets in regions such as the United States and Asia as collateral, and have accumulated money by selling them.

Due to the effects of the “Abenomics” economic policies of Prime Minister Shinzo Abe, many Japanese companies, especially larger ones, are making increasing profits. In addition, because of the BOJ’s monetary-easing policies, financial markets are awash with cash.

However, the money is not used for effective investments in Japan, and some of it is invested in overseas financial assets.

Meanwhile, some wealthy people in Japan who tried to hide their assets by using companies registered in the Cayman Islands or other areas have been notified by Japanese tax authorities that they have failed to declare income.

“Among wealthy people, there are some who conceal their assets by setting up many paper companies and do not declare their incomes appropriately to Japanese tax authorities,” said Go Kawada, a former official of the National Tax Agency, who is now serving as an advisor to Yamada & Partners Certified Public Tax Accountants Co.

Photo/Illutration The Asahi Shimbun

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