BOJ's quantitative easing affecting Asian markets

By Economics Monitor

Nov 24, 2014 10:20 AM EST

Last month the Bank of Japan announced aggressive easing of its monetary policy and shocked the global financial markets. In the monetary policy statement issued earlier this month, it reiterated the objectives (to accelerate the pace of increase in monetary base of about 80 trillion yen annually) and said, “The BOJ will continue with the QQE, to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner.”

This led to the yen hitting fresh lows against the dollar. USD/JPY rose to 118.98 last week on Thursday and is currently trading around117.

The weakening of the yen is believed to reverberate through the Asian markets. The impact is likely to be more for South Korea as its companies have to compete with cheaper Japanese exports in the automobile and technology sectors.

The Bank of Korea said it would keep a close eye on the impact of falling yen on local exports, the real economy and financial market stability.

HSBC’s Ronald Man said, “Expectations of rate cuts in Korea are on the rise. The Bank of Japan’s surprise decision…to expand its monetary base by a larger amount has weakened the yen, which poses downward risks to Korea’s export outlook. If downward pressure on JPYKRW persists and is perceived as a threat to Korea’s growth potential, the expectations of the Bank of Korea to cut its policy rate below 2.00% will strengthen.”

Rajeev Demello, head of Asian fixed income at Schroders Investment Management said, “The magnitude of the move in the yen is staggering…. We do expect the yen to have an impact on Asian currencies”. Investors are letting go their holdings of Korean won, Singapore dollars and other Asian currencies in response to the fall in the yen.


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