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Change in BOJ policy could have global spillover impact -
IMF
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China's economy to see productivity slowdown medium-term
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Global trade fragmentation could hit Asia hard
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South Korea must avoid premature easing, over-tightening
(Adds Srinivasan's comments from news conference)
By Leika Kihara
May 4 (Reuters) - The International Monetary Fund on
Thursday warned of "uncertainty" around the direction of Japan's
monetary policy, saying a possible shift from ultra-low interest
rates could have a significant impact on global financial
markets.
Krishna Srinivasan, director of the IMF's Asia and Pacific
Department, also pointed to risks surrounding Asia's economic
outlook including from weakening exports to advanced economies,
slowing productivity in China and a fragmentation of global
trade.
"Over the medium term, we expect the Chinese economy to
experience a slowdown in productivity and investment, which will
lower growth below 4 percent by 2028," he said.
"In addition, we see a risk that the global economy
fragments into trading blocs," which could deal a particularly
heavy blow to export-reliant Asia, Srinivasan said in a briefing
at the Asian Development Bank's annual meeting in Incheon.
While most Asian central banks must keep tightening monetary
policy, Japan remains an exception with inflation still moderate
- though this could change.
"There is uncertainty around the direction of monetary
policy in Japan, amid a rise in inflation," Srinivasan said.
"Changes in Japan's monetary policy that lead to further
increases in government bond yields could have global spillovers
through Japanese investors, who have large investment positions
in debt instruments abroad," Srinivasan said.
"Portfolio rebalancing of these investors could trigger a
rise in global yields, causing portfolio outflows for some
countries," he added.
With inflation exceeding its 2% target, markets are rife
with speculation the Bank of Japan (BOJ) could modify its bond
yield control policy in coming months.
The BOJ kept ultra-low interest rates on Friday but
announced a plan to review its past monetary policy moves,
laying the groundwork for new governor Kazuo Ueda to phase out
his predecessor's massive stimulus programme.
Srinivasan said China's rapid recovery after the re-opening
from pandemic-related curbs will likely lift exports in some
Asian countries including South Korea.
"The initial phase of the recovery in China has been led by
consumption and services, but at any time in the second half of
the year, we will see a change from consumption and services to
more manufacturing demand," Srinivasan told reporters.
While headline inflation is moderating in South Korea on
lower energy prices, core inflation excluding food and energy
costs has yet to come down decisively, he said.
That meant the Bank of Korea (BOK) must avoid a premature
monetary easing, though it should also minimize the risk of
tightening policy too much, he said.
"Taking these considerations together, the BOK has
appropriately paused rate hikes in the February and April
meetings, while keeping options open for further hikes depending
on incoming data."
(Reporting by Leika Kihara in Tokyo and Jihoon Lee in Incheon,
South Korea
Editing by Shri Navaratnam)
