With caution, Japan's neighbors welcome 'Abenomics'

Sun May 5, 2013 5:45am EDT
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By Rajesh Kumar Singh and Tetsushi Kajimoto

GREATER NOIDA, India (Reuters) - Emerging Asian neighbors are bracing for a surge in capital flows after Japan's unprecedented bid to pump up its long-moribund economy but most believe the upside of cheap cash and a stronger Japanese economy outweighs the risks.

The Bank of Japan stunned global markets last month with its plan to release some $1.4 trillion to end nearly two decades of stagnation and deflation, adding to the wave of quantitative easing stimulus already unleashed by central banks including the U.S. Federal Reserve and the Bank of England.

"We have to be wary of the building up of the asset bubbles. Inflationary pressures are on a bit of an uptick," Rajat Nag, Managing Director General of the Asian Development Bank, said during its annual meeting on the outskirts of New Delhi.

While others including Bank of Japan Governor Haruhiko Kuroda said they would be on the lookout for signs of unintended spillovers on emerging economies, many hope that the benefits of increased Japanese consumption outweigh the risks of asset bubbles, inflation and the competitive impact of a weaker yen.

They also said Asia would gain from investment by Japanese companies and in infrastructure that would result from Prime Minister Shinzo Abe's economic program, known as "Abenomics," but stressed the need to monitor capital flows to pre-empt risks to financial and economic stability.

Thailand, for example, is worried that its export-oriented economy could be hurt by strength in the baht currency as a result of higher inflows.

"When it was as strong as it was a couple of weeks ago, I have all the reasons to be worried," Thai Finance Minister Kittiratt Na-Ranon said of the baht.

Kittiratt, however, resists capital controls to manage flows. Instead, he said Thailand could look to lower interest rates -- which the central bank opposes -- and work with neighboring countries to use inflows to help fund projects that depend on imported goods.   Continued...

A Japanese national flag is hoisted at Bank of Japan headquarters in Tokyo February 25, 2013. REUTERS/Yuya Shino