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Japanese yen's depreciation has limited impact on Asian economies: experts

English.news.cn   2013-01-30 16:35:49            

By Tan Shih Ming

SINGAPORE, Jan. 30 (Xinhua) -- Japan's latest move to reeve up its economy by weakening the yen has raised some concerns that might hurt its Asian neighbors, particularly the emerging economies in the region.

However, research groups here have said that the impact of the Japanese move to deliberately weaken its currency on other Asian economies should not be overstated.

The yen has been on a relentless downward trend recently, having fallen some 13 percent since mid-November last year when newly-elected Prime Minister Shinzo Abe began calling for more monetary easing and strong fiscal expansion as part of his election campaign.

Last year, Japan's economy slipped into a recession on the back of external headwinds and diminishing post-tsunami reconstruction effects.

The Japanese yen exchange rate against the U.S. dollar plummeted to a 30-month low of 90.1 in early-January this year. Abe's intention is to arrest the deflationary cycle by weakening the yen.

CIMB Research said the yen's depreciation will even have positive effects on China, Korea, Taiwan, Malaysia, Indonesia, and Thailand since these countries import heavy machinery and equipment, including transport and vehicle parts and components, from Japan.

However, there could be short-term negative implications for exports to Japan as well as investments from Japan which could go down.

Japan is Asia's third-largest trading partner, after the United States and China, with total external trade with Asia growing by 6. 4 percent per annum between 2007 and 2012.

The Japanese market makes up between 2.2 percent and 16.1 percent of individual Asian economies' export share while Asia's imports from Japan are between 2.5 percent and 22.9 percent of total individual economies' imports.

Japan has consistently incurred trade deficits with most Asian economies except Indonesia and Malaysia since 2002.

CIMB Research believed that only an abrupt change from strength to weakness, in particular a sharp 20 percent to 30 percent devaluation, which could bring about a big shock to Japan's neighbors.

A sharply weaker yen will hurt Southeast Asian economies as Japan remains a major trade and investment partner. The region will bear the brunt of the adjustment if the yen's collapse causes financial uncertainty.

While a weak yen will definitely lead to lower imported cost of equipment for Asia, it will also result in Japan buying less from Asia. Thus, Japan's outward investment may decline.

According to Credit Suisse Research, Indonesia is best positioned while South Korea is most vulnerable to a combination of stronger Japanese domestic demand and a weaker yen.

"The winners would be countries which have Japan as both their 'suppliers' and 'consumers,'" said the Swiss research house, whereas "the losers would be those whose exports are similar to and compete with those from Japan."

Being "downstream producers" for Japan, exports from the member countries of the Association of Southeast Asian Nation ( ASEAN) are unlikely to be adversely affected by a weaker yen and may even benefit from cheaper intermediate goods imports.

Credit Suisse added that countries that export a large share of "end-users products" to Japan, like Indonesia and Malaysia, are likely to benefit from stronger Japanese domestic demand growth.

Nomura Research also argued that as some Asia economies such as South Korea and Chinese Taiwan have gained competitiveness over the past 10 years, along with the broad undervaluation of Asia foreign exchange rates during the period, there is less reason to be concerned about the potential negative impact of yen depreciation on Asian economies.

Indeed, with the strong capital inflows into Asia expected in first half of 2013, and the importance of Japan as a trading partner to the rest of Asia being diminished substantially from a decade ago, the yen's continuous depreciation is less likely a crucial factor to derail the growth trajectory of Asian economies than the currency and monetary policy of China which by now plays a dominant role in intraregional trade.

Editor: Chen Zhi
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