Asian economies wait out Japan’s stimulus effects
(16 April 2013 – Japan) Japan’s massive monetary stimulus program has sent the yen reeling to multi-year lows; however Asian economies are quickly recovering with no signs of any central banks reaching for the panic button.
The Bank of Japan (BOJ)'s new-found monetary radicalism poses a twin challenge for policymakers elsewhere.
In the past two weeks alone, the yen has dropped more than 5 percent on the dollar and euro.
It has also shed about 4 percent against the South Korean won to lows not seen since January 2010.
A rising currency versus the yen could hurt competitiveness and prompt calls for a rate cut from business.
However, capital inflows generated by the increase in liquidity could be inflationary and argue for a rate rise, although that could make things worse by attracting more yield-hungry cash.
Central bank sources in Taiwan and the Philippines said they were on watch, suggesting talk that Asia will scramble to react to the effects of 'Abenomics' is exaggerated.
The BOJ promised to inject US$1.4 trillion into the economy in less than two years.
That is three times bigger, as a share of the economy, than the stimulus the United States Federal Reserve has delivered so far.
The mix of massive money-printing, public spending and reforms to reinvigorate the world's third biggest economy should, in time, be positive for global growth.
In the shorter-term the unprecedented monetary boost has raised questions about whether the extra liquidity would spill over abroad, driving up currencies or stoking asset bubbles.
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