(The opinions expressed here are those of the author, a

columnist for Reuters. Repeats item that first ran on Thursday.)

By Jamie McGeever

ORLANDO, Florida, May 30 (Reuters) - Japan solidified

its status as the world's largest creditor last year as the

country's net international investment position grew to a new

all-time high as a share of gross domestic product.

Should Japanese investors decide to repatriate a chunk or

even a fraction of their overseas equity and bond investments,

the impact on global asset prices, exchange rates - and the yen

in particular - could be seismic.

The key question, however, is: Why would they?

To make it an attractive proposition, substantial policy

tightening from the Bank of Japan would be required to

sufficiently narrow the interest rate gap with the U.S. and

other major economies.

Ministry of Finance figures this week show that Japanese

investors had no appetite to repatriate investments last year

even as speculation over a BOJ exit from ultra-loose policy

began to mount.

As long as yields on foreign bonds remain significantly

above equivalent Japanese yields, repatriation flows back into

Japan are unlikely to materialize.

"Japanese wealth is large and repatriation flows are

powerful, but there is a second order question of whether there

is appetite in the private sector to repatriate," says Shekhar

Hari Kumar, macro strategist at Exante Data.

"I think there will be a continued slow leak of Japanese

investors buying foreign fixed-income assets. It's hard to see

the outflow turning around any time soon."

ALL IN BONDS

The total value of financial assets and investments held by

Japanese investors abroad at the end of last year exceeded the

value of Japanese assets and investments held by foreigners to

the tune of 471.3 trillion yen, MOF figures show.

That's $3.36 trillion at Dec. 31 exchange rates and marks an

increase of 51.3 trillion yen, or $366.5 billion, from a year

earlier. It's also a record 84.3% of GDP, up sharply from 76.6%

a year earlier and a reminder of Japan's muscle on the global

financial stage.

A deeper dive into the MOF figures reveals that the $366.5

billion net increase in Japan's paper wealth last year was

enhanced by asset purchases, valuation changes and, more

significantly, the weakness of the yen.

Exchange rate moves boosted Japan's overall international

investment position by 59.23 trillion yen, or $423 billion, and

net asset buying in the broadest terms lifted it by $166.5

billion. These effects were offset by $223 billion of "other

changes" such as mark-to-market changes in asset prices.

Of the 86.1 trillion yen or $615 billion increase in the

value of Japan's portfolio investments abroad last year, around

40% was due to exchange rate moves, almost a third a result of

"other changes", and only 20% from actual asset purchases.

The near $300 billion increase in Japanese holdings of

foreign debt securities was evenly accounted for by actual

buying and FX fluctuations, while the $320 billion increase in

equity holdings was entirely a result of FX and "other" changes.

That meant Japanese investors actually sold $16 billion of

foreign stocks, which analysts say was probably to offset the

rise in equity prices and meet rebalancing requirements.

RIPPLE EFFECTS

The figures underline just how much the yen's depreciation

has increased profits for Japanese investors and financial

institutions holding overseas investments, and the value of

these holdings.

The yen fell 7% against the dollar last year, 12% the year

before that, and is down a further 10% so far this year to an

all-time low 160.00 per dollar. The yen's broad effective

exchange rate is the weakest it has been since the era of

free-floating exchange rates was established in the early 1970s.

Any Japanese investor holding overseas assets has benefited

hugely in recent years from exchange rate trends, the widening

interest rate gap between Japan and the rest of the world, and

latterly, the AI-fueled boom on Wall Street.

Exante Data's Hari Kumar estimates that 70% to 80% of the

boost to Japan's international investment position over the last

two years has come from the yen's depreciation and

mark-to-market changes in asset prices.

The exchange rate, in particular, has boosted Japan's paper

wealth. As Deutsche Bank's George Saravelos noted recently, the

government pension investment fund (GPIF) - the world's largest

public pension fund - has roughly made more profit over the last

two years than the last 20 years combined.

"Exchange rate fluctuations and their valuation effects can

also affect the lives of those who may not appear to be

interested in FX investments," Hiroyuki Ito, professor of

economics at Portland State University, wrote in a paper last

year on the yen and Japan's international investment position.

Some Japanese investors may be tempted to turn that paper

profit overseas into realized profit at home. But with the yen

still anchored at historic lows and Japanese yields still

lagging well behind their global peers, their record wealth is

likely to remain offshore.

(The opinions expressed here are those of the author, a

columnist for Reuters.)