BOJ says Asian currency turmoil to settle soon

BOJ says Asian currency turmoil to settle soon

TOKYO (Reuter): Bank of Japan (BOJ) Executive Director Takeshi Anzai said on Wednesday that he sees Asian currency turmoil settling down soon.

He said Asian currencies should reflect economic fundamentals.

Asked about the outlook for the Thai economy, Anzai told Reuters Financial Television: "The economy of Thailand may slow down temporarily after the country's decision to float the baht on July 2."

He added that the BOJ supported Thailand's measures to rein in its domestic inflation.

Anzai said that he does not see foreign exchange volatility casting a shadow over growth in Asia, adding that the authorities in Asia must make clear their views to prevent the markets from overshooting.

"There might be a one-off slowdown in this process of adjustment. That's unavoidable, but it's also a good thing. This is not a crisis," Anzai said.

Asked about the usefulness of so-called repo pacts in the context of recent volatility in Asian currencies, Anzai said that they had not been needed since the situation had not resulted in a lack of liquidity.

That alone demonstrates that the recent situation is not a crisis, he said.

In April of 1996, Japan agreed with the monetary authorities of Australia, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore and Thailand to establish bilateral repo or repurchase agreements to provide liquidity in times of currency crises.

South Korea joined the pact in January this year.

The repo pact gives participants instant access to cash by selling their holdings of U.S. government securities to the pact's partners with a promise to buy them back later.

Anzai said the recent developments in Thailand and the Philippines have given policy makers more flexibility to concentrate on domestic fundamentals.

Malaysia and Indonesia have already been pursuing "a relatively more flexible" foreign exchange policy and Anzai said he understood that authorities would continue that.