This change is partly the result of the rapidly growing economies in Asia , which has created a large and expanding cumulative export market. This economic integration is also the result of Asia's participation in the globalization of production. These trends have led to greater diversification of economic activity in the region and a reduction in the over-concentration in the traditional export markets. In the area of investment, Japan has for several decades been a major foreign direct investor in the Asian region. A more recent phenomenon is the more widespread cross-border investment undertaken in the region to capitalise on the growing opportunities arising from the diversity of economic strengths in the region. These developments have increased the potential for Asia to be an important engine of growth in the global economy. The advancement that has been achieved in the increased economic integration needs to be reinforced by greater financial integration. Accelerating the regional financial integration process would serve as a powerful impetus, not only for reinforcing the trade and investment inter linkages, but more importantly to facilitate a more efficient international allocation of capital. In so doing it would contribute towards unlocking Asia's full potential in the global economy. Indeed, such greater financial integration would also play an important role in facilitating the allocation of some part of Asia's surplus funds into productive investments within the region. The more effective and efficient recycling of funds within the region will help reduce financing costs, stabilize financial prices, and increase the potential for the diversification of risks.

All this would cumulatively promote stability and resilience of the financial systems in our region. The current turmoil in the global financial markets and the uncertainties it has generated underscores the need for greater financial stability and resilience of our financial systems. There are several ways to enhance financial interlinkages, some of which are already in progress. In the financial sector, we have already seen Asian financial institutions expand  BIS Review 94/2007  1  beyond domestic borders, thus strengthening the regional economic linkages. The regional authorities and regulators have also come together to develop the regional financial markets, including the capital markets, the supporting regional financial infrastructure and mechanisms for crisis management and resolution. These developments have paved the way for new forms of economic partnerships and strategic alliances and advance further the regional integration process and its inter linkages with the rest of the world. Malaysia and Japan: interlinkages and opportunities Malaysia is one of the most open economies in the world, with significant global trade and investment linkages, and has become a significant profit centre for foreign direct investment for several decades. Similarly, the volume of trade activity in Malaysia is two times the size of our economy, among the highest in the world. Our outreach for trade has been with both large and small economies. For several decades Malaysia has had an extensive economic relationship with Japan, with Japanese foreign direct investment being particularly significant since the mid 1980s.