The International Monetary Fund (IMF) warned Asian economies on Friday they face serious risks as they attempt to steer a path between supporting growth with more stimulus and tightening credit to stabilise debt and inflation.
IMF deputy managing director Kenji Okamura said the Covid-19 pandemic, the war in Ukraine and tougher global financial conditions would make this year “challenging” for Asia.
The risks applied particularly to the most vulnerable economies, Okamura said.
The war was affecting Asia through higher commodity prices and slower growth in Europe, he said.
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‘Drifting Inflation Expectations’
Speaking at his first media event since becoming one of four deputy managing directors at the global lender in December, Okamura warned on the prospect of even more forceful tightening if inflation expectations kept on “drifting”.
“There is a risk that drifting inflation expectations could require an even more forceful tightening,” he said, calling for calibrated policies and clear communication.
Okamura, a former Japanese vice finance minister for international affairs, said the Bank of Japan’s easing policy – which the IMF has described as effective – runs counter to a global shift towards monetary tightening.
The widening gap between Japanese and US interest rates has been a major factor behind the recent yen depreciation to two-decade lows.
“You can mostly explain the recent movements, especially the last month, in the yen based on essentially tighter global monetary policy” including the US Federal Reserve, said Ranil Salgado, chief of the IMF mission in Japan.
“The yen depreciation on balance helps Japan,” Salgado added.
- Reuters, with additional editing by George Russell
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