IMF Shinohara - Tighter funding may weigh on Asian growth
By Leika Kihara
WASHINGTON (Reuters) - Emerging Asian nations are seeing financial conditions tighten more than expected as the U.S. Federal Reserve tapers its massive stimulus, which may weigh on the region's economic growth, a senior International Monetary Fund official said.
But the chance of a huge capital outflow from Asia is slim even as the Fed eyes raising interest rates in the future, said IMF Deputy Managing Director Naoyuki Shinohara.
"As a broad trend, markets are gradually shifting away from the ultra-loose conditions observed until recently. The tighter financial conditions are somewhat negative for emerging economies," Shinohara told Reuters on Thursday.
On the other hand, emerging economies stand to benefit from a rebound in advanced economies, particularly that of the United States, he said.
"It's a tug-of-war between such positives and negatives."
Emerging Asian nations have not been immune to the impact of the Fed's massive stimulus and the tapering of it, which jolted financial markets. That has caused complaints from some of them on how central banks of advanced economies communicated their policy intentions.
Shinohara said the risk of the Fed's communication destabilizing markets again cannot be ruled out, although it was unlikely to lead to a huge capital outflow from Asia.
The former Japanese currency tsar also dismissed the idea that the Bank of Japan's continued ultra-loose policy will help cushion the impact of the Fed's tapering on Asian markets, saying the flood of money pumped out by the Japanese central bank so far hasn't spilled out much to overseas markets.
The BOJ launched an intense burst of monetary stimulus last April, pledging to double base money via aggressive asset buying to accelerate inflation to 2 percent in roughly two years.
One of the aims of the policy was to nudge Japanese investors into shifting funds away from the safety of Japanese government bonds into riskier assets such as equities and overseas assets, although this has not been happening much yet.
"We'll see it gradually happening but it will take time," he said. "For now, the outflow of Japanese funds isn't having much impact on emerging markets."
Shinohara also reiterated his view that the BOJ has delivered enough stimulus for now and doesn't need to ease further, given inflation expectations are steadily rising.
"Even if the economy were to worsen somewhat, relying too much on monetary policy makes it more difficult for the central bank to restore market confidence in the future," he said.
BOJ Governor Haruhiko Kuroda on Tuesday dismissed the chance of easing again any time soon, stressing that Japan was on track for achieving the bank's price target.
But many market players remain unconvinced and expect the BOJ to act again in coming months, warning that inflation may not accelerate much as a sales tax hike in April is set to weigh on the economy.
(Reporting by Leika Kihara)
