The slow growth of the japanese economy has exacerbated the outflow of capital, further putting pressure on the yen, which has fallen into a depreciation quagmire.

According to analysts cited by Bloomberg, the interest rate differential between japan and the usa is the reason for the yen's continued weakness, especially considering that the upcoming fiscal policies of the new us president, Trump, may trigger inflation, while trade and investment flows have intensified this effect.

Data shows that japan's current account surplus in the third quarter was 8.97 trillion yen (about 57.5 billion usd), but this figure was offset by outflows from direct investment and securities investment, limiting the potential appreciation of the yen. Moreover, the outflows from direct investment and securities investment in the third quarter far exceeded the levels in the first and second quarters of this year. Specifically:

First quarter: direct investment outflow 4 trillion, securities investment outflow 0 trillion.

Second quarter: direct investment outflow 4.4 trillion, securities investment inflow 4.1 trillion.

Third quarter: direct investment outflow 4.3 trillion, securities investment outflow 12.2 trillion.

In September, as traders massively closed out yen arbitrage trades, the exchange rate of the yen against the usd hit a 14-month high, but subsequently fell by about 10%, reaching the lowest point since July today at 155.75.

Shusuke Yamada, head of currency and interest rate strategy in japan, stated that a significant portion of the surplus comes from fundamental income and is being reinvested overseas, making it easy to be misled if one only focuses on the current account balance.

In the third quarter, japan's fundamental income surplus reached 12.2 trillion yen, a historic high, primarily due to investment returns (the current account measures exports and imports along with other cross-border flows, including wages and investment returns). These offset the deficit in commodities and services, increasing the current account surplus.

Hideki Shibata, senior strategist at Tokai Tokyo Intelligence Laboratory Co, stated:

"The deficit in trade balance has led to the selling off of the yen to meet foreign currency demands, and this trend will continue."

Moreover, the direct investment attracted by japan is also the lowest among major economies. Since 1996, the size of japan's direct investment outflows has exceeded the inflows almost every quarter. According to an analysis by Bloomberg of International Monetary Fund data, as of the end of June, japan's outstanding foreign direct investment accounted for 8.3% of GDP, the lowest among the top 20 economies globally, compared to 99% for the united kingdom and 57% for the usa.

The japan central bank estimates that japan's potential economic growth has remained stagnant over the past two decades, with recent data showing 0.6%, further indicating an increase in capital outflows. Despite japan attracting more securities investment, outstanding balances account for 90% of GDP. However, Hirofumi Suzuki, chief forex strategist at Sumitomo Mitsui Banking Corporation in Tokyo, believes that most of these inflows have not led to yen appreciation:

"Because they are hedged, mostly speculative, and there has been no growth in long-term holding demand."