Growth in Japanese lending and direct investment in the United States: are they related?

Studies on the growth of foreign banks in the United States ascribe foreign banks' operations, in particular those of Japanese banks, to growth in foreign trade and direct investment in this country. We find, however, that data do not support this hypothesis. Local borrowing by affiliates of Japanese firms does not account for the majority of Japanese lending in the United States. Rather, US-owned firms have increasingly become customers of Japanese banks in the United States. Given the current credit tightening by capital-constrained Japanese banks, it is particularly important to establish who their customers really are.