Abstract

The Tokyo Foreign Exchange Market: Market Structures and Risks

During the last years, the foreign exchange market in Tokyo has become the third largest worldwide, behind London and New York. The present contribution describes the risks related to the extraordinary growth of this market, which seem greater than those in any other centre. The reason is an accumulation of potential dangers resulting from a particularly high volatility of the yen, a comparatively large and growing market for derivatives, with market participants often showing a disturbing lack of experience in this field, and an extraordinary high volume of cross-border funds particularly exposed to the Herstatt-risk. Official approaches to limit the risks look promising, but, so far, must be considered as insufficient. Biggest obstacle in this context is an attitude of the authorities who are used to interfere in the markets for special purposes in a highly informal manner, thereby further diminishing transparency and rending the risks uncontrollable.