Financial markets around Asia are preparing for a Goldilocks economy in 2018 — not too hot, not too cold, with strong growth and stable prices. The region's export-oriented emerging economies are benefiting from the recovery in global trade, while its largest players — China, Japan and India — remain dynamic. Throughout the region, accelerating economic growth, together with positive corporate earnings expectations and persistent capital inflows, are driving up stock prices. And inflation will remain in check, owing largely to the slow rise in wages and import prices.

Yet there remains plenty of cause for concern. For one thing, Asian markets will undoubtedly face capital-flow volatility, driven by the major advanced economies' monetary policies. For another, large debts could increase financial risk in some Asian economies, damaging growth prospects. The region's central banks will be integral to managing these risks.

In the wake of the global economic crisis, Asia's central banks, like their counterparts in the advanced economies, assumed a leading role in supporting domestic growth. But, as the global economic recovery gains momentum, the time has come to begin tightening monetary policy.