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TOKYO – Asian economies must be aware of the risks of spillover as major central banks’ decades-old obsolete facilitation policies have failed faster than expected, said Kenji Okamura, deputy managing director of the International Monetary Fund (IMF).
Okamura said the risks apply especially to the weakest economies.
He said Asian economies have faced a choice between supporting growth with greater stimulus and withdrawing it to stabilize debt and inflation.
The central banks of the United States, Britain and Australia have already raised interest rates on the Bank of Japan’s easing policy – which the IMF has described as quite effective.
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The widening gap between Japanese and US interest rates is one of the main reasons behind the recent devaluation of the yen to its lowest level in two decades.
“You can explain most of the recent developments, especially last month, in the yen, based on a tougher global monetary policy, including the US Federal Reserve,” said Ronil Salgado, assistant director and head of the IMF’s Asia and Pacific division’s Japan mission.
“The devaluation of the yen on the balance helps Japan,” Salgado added, echoing the views of BOJ Governor Haruhiko Kuroda.
Okamura, a former Japanese co-finance minister for international affairs, said the Kovid-19 epidemic, the war in Ukraine and the difficult global financial situation would make this year “challenging” for Asia.
He says the war is affecting high commodity prices in Asia and slow growth in Europe.
Speaking at his first media event since becoming one of the four deputy managing directors of global lenders in December, Okamura warned of the possibility of further strengthening if inflation expectations remain “flowing”.
“There is a risk that tightening expectations may be needed to anticipate flowing inflation,” he said, calling for calibrated policy and clear communication. (Reporting by Tetsushi Kazimoto; Editing by Bradley Parrett and Sam Holmes)