A group of IMF researchers have found that Japan’s unorthodox currency easing policy has had a surprisingly positive effect on most surrounding economies in the region, and have released their findings in a paper.
Beijing, China, June 30, 2016 — The country’s interventions into the currency exchange markets, an attempt to lower the yen’s value, have been ill received by the U.S. with both nations coming together at a G-7 summit in Japan this week where the subject is likely to be hotly debated.
The research paper is the first of its kind and claims to offer a model of the knock on effect of Japan’s monetary easing policy on emerging S.E. Asian economies.
Qualitative and quantitative easing (QQE) has been practised for over 3 years now and has been targeting a number of assets including various funds, bonds and real estate as well as directly affecting the currency markets. The outcome has been a significant drop in the yen versus the greenback from 80 at the start of easing to about 120 last year.
The report shows that regional economies are benefitting from this. Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented on the findings in a phone interview, “What we are seeing is a positive effect on emerging S.E. Asian currencies as the QQE goes full throttle in Japan. Equity prices go up all across the region in response to the policy, not just in Japan.”
Lane added, “There has been a gain in output, inflation and capital investment in the smaller economies. Basically all this means a generally positive effect on economic growth and a healthy outlook for the region overall.”
The paper also reports that the jumps in equity prices also prompts a rise in general confidence, which spurs further investment. A good example is China, a country with particularly solid trade partnerships with Japan.
The International Monetary Fund research report is by no means the official line, nor does it represent the consensus view of IMF staff, however, with Japan likely to come up against stern opposition from the United States at the forthcoming Group of seven summit concerning this issue, the paper comes as welcome and much needed ammunition for the Finance Minister Taro Aso as he looks to gain allies to his side of the argument and build backing for monetary easing to counter the inevitable U.S. objections.
Michael Lane continued, “The meetings are going to be very interesting. Japan has these new stats coming from a very prominent source and this could tip the balance in their favour.”
Shizuoka Capital Wealth Management