Asia policymakers optimistic Japan stimulus will revive growth

Bank of Japan Governor Haruhiko Kuroda points at a chart projecting his quantitative and qualitative monetary easing plans during a news conference after his first monetary policy meeting as BOJ governor in Tokyo on April 4. Photo: REUTERS

Asian policymakers braced for a flood of capital unleashed by the Bank of Japan's huge monetary stimulus, but some conceded on Friday the impact on global money flows and currencies might prove to be a necessary side-effect to get the region's No.2 economy growing.
New BOJ Governor Haruhiko Kuroda on Thursday promised to inject about $1.4 trillion into the Japanese economy in less than two years and committed the bank to open-ended asset buying, a dose of shock therapy officials hope will end two decades of stagnation.
The stronger-than-expected measures, which appeared to catch other regional officials by surprise, spurred a sharp sell-off in the yen across the board and risked upsetting other Asian exporters who may lose competitiveness.
A resurgence of the carry trade - borrowing cheap yen to invest in other higher yielding assets - has also been a sore point around the region, but policymakers played down concerns about damaging and distorting impacts on asset prices and currencies.
"We can't say for sure whether this policy will lead to a yen carry trade and flooding in cheap foreign funds (on the local markets) because there are a lot of stages that such a policy has to go through before leading to actual carry trades," senior official at the Bank of Korea said, adding that officials there had not been informed in advance of the BOJ's plans.
"Even if the BOJ succeeds in expanding the base money liquidity, you can't say for sure the extra money will flow out of Japan in the form of short-term money."
The Hong Kong Monetary Authority echoed South Korea's wait-and-see approach, while Singapore highlighted the importance of rebooting the dormant Japan economy.
"It is in everyone's interest that Japan is able to reflate its economy, it is a challenge and they are attempting a new approach. But it is in the interests of the rest of Asia that they succeed," Tharman Shanmugaratnam, Singapore Deputy Prime Minister and Finance minister, said on the sidelines of an ASEAN meeting on Thursday.
"I think that capital flows are a corollary rather than an objective of their policies, likewise exchange rates are a corollary. The fundamental policy is one of domestic monetary policy rather than capital flows and exchange rates."
Currencies such as the Thai baht and the Australian and New Zealand dollars -- traditional favourites of the other side of carry trade -- gained sharply.