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Contents Introduction

This paper investigates whether the recent increase in financial interdependence between Japan and East Asia has served to facilitate the international use of the yen in the East Asian region, by investigating not only the changing patterns of capital flows between Japan and the East Asian region but also the currency denomination of these flows. Japan’s balance of payments with the East Asian region are also examined to clarify whether Japan has played a role of financial intermediary in terms of the yen to the region. We reveal that the use of the yen in financial transactions is in fact far smaller than the casual observation, and discuss what impedes the yen-denominated transactions in the East Asian region. We emphasize that the further use of the yen in trade transactions is particularly important for the yen internationalization in the region, by analogy with the internationalization of the Deutsche Mark.