Japan blamed for Asia currency crisis<\/p>\n
HONG KONG (Reuter): Japanese monetary policy is likely to have
\nbeen the main catalyst for recent speculative attacks on various
\nAsian currencies, most notably the Thai baht, Deutsche Morgan
\nGrenfell (DMG) said in a research report.<\/p>\n
\"In the past two weeks there has been a radical re-assessment
\nof Japanese monetary policy, perfectly coinciding with the
\nincreasing currency pressure,\" DMG wrote in a weekly research
\nreport.<\/p>\n
Many Southeast Asian nations are heavily indebted to Japan, a
\nconsequence of its cheap yen and low lending rates. Japan's
\nofficial discount rate has been at a record low of 0.5 percent
\nsince September 1995.<\/p>\n
In the case of Thailand, two-thirds of its outstanding debt is
\nowed to Japanese banks, suggesting than any increase in Japanese
\nrates will lead to a higher cost of capital for the economically
\ntroubled country.<\/p>\n
At the same time, the yen has been gaining against the U.S.
\ndollar, eroding some of the yen's massive 50 percent depreciation
\nagainst the greenback over the past two years.<\/p>\n
\"Even if the loan rates are fixed, the maturity of the loans
\nis so low as to be rolled-over at higher rates,\" DMG said.<\/p>\n
\"How much of this lending is hedged is impossible to calculate
\ngiven this is carried out through off-balance sheet transactions.<\/p>\n
The analogy, of course, is that the Japanese banking system is
\nto Asia (what) the U.S. banking system was to Mexico.\"<\/p>\n
Mexico faced a cash and liquidity crisis in late 1994, which
\nquickly spread to other countries. The probability of such
\ncontagion in Asia remained high, DMG said.<\/p>\n
Even though coordinated currency intervention by the region's
\ncentral banks in recent weeks, including the Bank of Japan,
\nappears to have worked in the short term, many Southeast Asian
\nnations cannot cope with high interest rates for long.<\/p>\n
\"The likelihood is that other currencies will come under
\nconsistent pressure,\" DMG said.<\/p>\n
\"In recent weeks we have pointed out that the (Indonesian
\nrupiah) carry trade no longer offers value and the Philippines
\nare accumulating excessive net foreign liabilities. Thus the
\ncontagion effect on other regional currencies is likely to be far
\ngreater than in the Mexico crisis.\"<\/p>\n
A consistent and transparent policy is essential for central
\nbanks throughout Asia to maintain credibility, DMG said.<\/p>\n
\"However, unlike the Tequila crisis imported from Mexico,
\nthere is a very real inconsistency in local policy (in Asia).<\/p>\n
This must be addressed, otherwise the speculators will return
\nand the crisis will deepen,\" the report said.<\/p>\n
The final outcome must be to achieve lower interest rates,
\nwhich can only be achieved with a more flexible currency regime,
\nDMG said.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/japan-blamed-for-asia-currency-crisis-1447893297",
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