Japan, Philippines see few signs of Asia bubbles post-BOJ

GREATER NOIDA, India Thu May 2, 2013 3:26pm BST

Bank of Japan Governor Haruhiko Kuroda speaks during a group interview at the BOJ headquarters in Tokyo April 10, 2013. REUTERS/Toru Hanai

Bank of Japan Governor Haruhiko Kuroda speaks during a group interview at the BOJ headquarters in Tokyo April 10, 2013.

Credit: Reuters/Toru Hanai

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GREATER NOIDA, India (Reuters) - There are few signs of asset bubbles forming in Asia due to Japan's massive monetary easing, Bank of Japan Governor Haruhiko Kuroda and his counterpart in hot-money target the Philippines said on Thursday.

Under Kuroda, the BOJ stunned financial markets last month by pledging to inject about $1.4 trillion into the economy to end nearly two decades of stagnation and hit a 2 percent inflation target in roughly two years.

Some policymakers in Asia fear strong capital flows coming from easier monetary policy in advanced economies may result in disruptive bubbles and currency appreciation, making Asian exports less competitive. Kuroda played down those fears.

"So far I have not much observed that big asset bubbles are occurring due to capital inflows," Kuroda told reporters on the sidelines of the Asian Development Bank's annual meeting, held in India.

Speaking on the sidelines of the same meeting, Amando Tetangco, governor of the Philippines' central bank, said he was not worried about Japanese inflows. The Philippines has been a favourite among foreign investors and is likely to attract more flows after Standard & Poor's upgraded the country's debt to investment grade on Thursday.

Tetangco said managing inflows, along with inflation, was a key priority of his central bank but said Japanese money did not feature heavily among investors in the Philippines.

"I do not think that will have a significant impact on us," he told reporters when asked about impact of Japanese quantitative easing on Philippines economy.

"Investments in bonds and equities by Japanese institutions is not that significant. It accounts for only 2.8 percent of total investments in these assets," he said.

Tetangco said despite the challenges faced by currency flows, he had no plans to implement controls on portfolio funds.

MONITORING SPILLOVER

Kuroda said the Japanese central bank will monitor whether its monetary easing could have an unintended spillover effect on emerging economies. He told reporters each country should take policy steps that take account of their own situation.

The BOJ is not alone in flooding its economy with cheap funds to try to boost borrowing and spending. Others have also engaged in quantitative easing, led by the U.S. Federal Reserve, the Bank of England and, to some extent, the European Central Bank.

Kuroda said financial markets and economic trend have been moving in line with his expectations since the BOJ took aggressive policy steps just less than a month ago.

"Recovery in the Japanese economy will become clearer from around the middle of (this) year," he said. "We have already seen positive consumption indicators and I expect capital spending and other indicators will follow suit."

The central bank held off on offering any fresh policy initiatives at last week's policy meeting and forecast that inflation would rise to around 2 percent towards the latter half of the next three years due to its massive stimulus plan, a projection analysts say may be too optimistic.

(Additional reporting by Rajesh Kumar Singh; Writing by Malini Menon; Editing by Frank Jack Daniel and Stephen Nisbet)

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