BSP AND PRIVATE ANALYSTS ON JAPAN’S STIMULUS MEASURES:

‘Disappointing’ BOJ move may benefit PH

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Emerging markets like the Philippines could take advantage of investors’ risk appetite whetted by the “disappointing” Bank of Japan (BOJ) economic stimulus package and the US freeze on interest rates. But they must be alert to deal with any policy divergence near term by these two major economies, central bank and private analysts said.

The Philippines must closely monitor in which direction the economic indicators would take the US Fed rates and “see how the Fed and BOJ may be diverging,” an analyst from the Bank of the Philippine Islands (BPI) said.

The BOJ on Friday announced a higher exchange-traded fund purchases target of 6 trillion yen ($58 billion), as well as an increase in its dollar-lending program to $24 billion.

However, contrary to expectations, it decided to keep its base money target at 80 trillion yen.


“There seems to be some difference in the magnitude of fiscal and monetary stimuli. While there was massive fiscal stimulus announced by the Japanese government, there was relative modesty in monetary stimulus based on market perception,” Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said in a text message.

Guinigundo said that all in all, the BSP is looking at possibly historic lows in interest rates in Japan, and the country’s monetary authorities would expect that capital flows might ensue in favor of emerging markets, including the Philippines.

“That could bring about renewed volatility in financial markets, potentially resulting in a peso appreciation and a higher level of domestic liquidity,” he said.

On the other hand, he said, should such public stimuli lead to a better economic outlook in Japan, that could encourage more exports from the Philippines and investments here from Japan.

“Truly, we are seeing more balls in the air . . . ,” he said.

Sharing this view, an economist from ING Bank Manila said the Philippine should still benefit from the positive impact of the stimulus to the Japanese economy.

“While the monetary policy decision by BOJ disappointed, the government’s substantial fiscal stimulus, (which is additional spending of 28 trillion yen), would be able to provide some support to the Japanese economy,” Joey Cuyegkeng, senior economist at ING Bank Manila said in an e-mail to The Manila Times.

“If this is effective in boosting Japan’s economy, then risk assets such as emerging markets (including the Philippines) should benefit,” he added.

Meanwhile, a Bank of the Philippine Islands (BPI) economist said what BOJ has implemented is a “token stimulus,” instead of the expected “helicopter money.”

“Well I was wrong, the BOJ disappointed with only token stimulus,” said Nicholas Antonio Mapa, BPI associate economist, in an e-mail to The Times.

Mapa earlier said, “Although enacting the “’traditional’ means of helicopter money are deemed unconstitutional, a tweak to BOJ’s current quantitative easing program via availability to purchase perpetual bonds would get that chopper off the ground.”

With the BOJ’s decision to keep its stimulus program at current levels, he said, the Philippines will have to see how strong the data is from the US going forward and “see how the Fed and BOJ may be diverging.”

“For now, we may see more risk-on sentiment as the Fed looks to be on hold for a few months, while the BOJ may eventually need to ease monetary policy further,” Mapa said.

The Fed on Wednesday (Thursday in Manila) left key interest rates untouched but acknowledged improved economic performance. Their improving view on economic conditions left open the possibility of an increase in the benchmark federal funds rate, currently at 0.25-0.50 percent, by December.

Putting behind the surprise sharp downturn in job creation in May that had raised worries about the economy, the Federal Open Market Committee (FOMC) which sets the monetary policy, said employment and economic growth had grown moderately since their mid-June meeting.

They also appeared to see less threat to US growth from Britain’s vote to leave the European Union, which took place a week after the last FOMC meeting.

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