BOJ exec says Fed taper might rock emerging economies, Japan recovery

Kyodo

Bank of Japan Policy Board member Koji Ishida voiced concern Wednesday about how emerging economies will be affected if the U.S. Federal Reserve begins tapering its quantitative easing program and said it was time for Japan to return to traditional export-led growth.

Tapering bond purchases is expected to drive up U.S. long-term interest rates, which could trigger an outflow of funds from emerging economies and “have a negative impact on their economic growth, inviting falls in currencies, stocks and bonds as well as rising inflation,” Ishida said in a speech in Aomori.

Ishida said he is watching these negative effects as well as positive spillover effects stemming from U.S. economic growth.

He added that the development of overseas economies will be key to Japan’s recovery.

“Though this phase of the recovery is being led by personal spending and housing and public investment that correspond to domestic demand, exports now need to play the role of the engine of the recovery,” he said.

“In order for our country’s economy to return to a stable path of recovery, a pickup in exports will be necessary,” he said. “From this aspect, development of overseas economies will be the key.”

Ishida said the BOJ’s radical monetary easing program is also containing upward pressure on Japan’s long-term interest rates, though higher U.S. rates are driving up German and British rates.

Ishida called on the government to adopt growth strategies and secure the shaky credibility of its finances, which are endangered by the biggest debt load in the industrialized world.