Japan’s easing requires attention: BOK

Lee Ju-yeol, governor of the Bank of Korea, said Monday that he is keeping a close watch on local financial markets as the impact of Japan’s additional monetary easing appears to be taking shape earlier than expected.

“(Japan’s) additional monetary easing came earlier than market expectations and we are closely monitoring (the situation),” Lee told reporters.

“Our main concern is how (the easing) will affect our economy, especially the currency trends.”

Lee’s comments came after he delivered the opening speech at a conference jointly organized by BOK and the International Monetary Fund, on the “Future of Asian Finance: Financial Integration and Implications for Macroeconomic Performance in the Region.”

On Friday, the Bank of Japan announced further quantitative easing, increasing its yearly asset purchases by up to 20 trillion yen ($177 billion) from the current total of 60-70 trillion yen to 80 trillion yen.

The unexpected move once more lowered the yen against the U.S. dollar, also bringing a sharp slide in the Korean won against the greenback.

“Any sharp changes (including the depreciation of the yen) deserve keen attention,” Lee said.

At the conference, the governor said that financial integration within the Asian region is crucial, citing the possible instability which may arise after the U.S. monetary easing ends.

“There is a growing fear about policy uncertainty and financial instability as the U.S. Federal Reserve System is expected to normalize its interest rate,” he said.

Most Asian states tend to have a relatively low rate of domestic bond investment, especially compared to their high trade volume, and thus remain highly dependent on the overseas financial market situation, he said.

“This is why the Asian financial market has so far been directly exposed to global shocks.”

In order to make progress in financial integration among Asian states, the top priority is to build a firewall that can prevent the financial risks of specific countries from spreading to the entire region, he added.

Further, individual economies should improve their financial recuperative powers through necessary policies and regulations.

“Asia’s financial integration will not only boost the region’s economic growth potential but also increase its financial resilience,” the BOK chief said.

By Bae Hyun-jung (tellme@heraldcorp.com)