Japan’s reflation attempt may lift Indonesia, squeeze Korea: ANZ

July 22, 2016

TOKYO - More monetary and fiscal stimulus is coming Japan’s way, perhaps in a manner that is more radical than the norm, in a bid to sustainably reflate Japan’s economy out of its funk, ANZ Bank says in a new research report, pointing to a policy meeting of Bank of Japan this coming Friday (July 29).

“If (stimulus) eventuates, we see two dynamics at play which might have profound implications for the rest of Asia: protracted weakness in the yen and a pick-up in Japan’s domestic demand,” the report says.
“Indonesia stands out among the ASEAN economies as the clear ‘winner’ from a successful Japanese reflation given that its exports are highly leveraged to Japan’s domestic demand as indicated by its high reading of the trade complementary index. In contrast, South Korea’s exports would be less competitive than Japan’s should yen weakness persist, given its high export similarity with Japan.”
ANZ says the Bank of Japan (BoJ) is widely expected to cut its inflation forecasts at its July 29 meeting and to ease policy further. “All options are open, including buying more assets and cutting the deposit rate further into negative territory.”  www.live.anz.com (ATI).