Satoru Hagino, Itofumi Takeuchi

Flow of Funds Account (FFA) is useful in identifying intersectoral and international capital flows. Bank of Japan compiles FFA on a quarterly basis since 1954. Since the beginning, the FFA has been compiled into a two dimensional matrix where the rows represent transactions and the columns represent sectors. However, to facilitate intersectoral analysis, this framework needs to be upgraded to a three dimensional matrix by adding counterparty sectors as an additional axis.

This paper attempts to introduce a three dimensional approach in Japan's FFA, using the existing data available. Such an attempt could be made possible by adopting a simple assumption that sectoral allocation of each financial asset category is equivalent to the ratio of sectoral breakdown of corresponding liability. However, this is a bold assumption and the outcome data may not correctly reflect the real situation of the economy, if adopted fully. Therefore, the paper uses actual sectoral allocation data, including loans, as much as possible to improve the accuracy of the estimation. The necessity of strengthening source data may be discussed as future steps.

The paper also envisages further enhancement of data by incorporating currency breakdown in household assets and nonfinancial corporation debt. Taking account of variations in exchange rates, the paper attempts to measure the currency risk associated with these assets and liabilities.

The introduction of enhanced intersectoral FFA in Japan may allow the FFA to be used in capturing which sector is exposed to what amount of investment risks.

**Keywords:** FFA; Intersectoral; International; Risks

**Biography:** Mr. Satoru Hagino is head of Statistics Development and Coordination of the Bank of Japan