Last updated: May 29, 2013 12:23 pm

IMF says ‘no evidence yet’ of Abenomics hurting other economies

Japan’s programme of monetary easing has not resulted in capital flows or excessive liquidity in other economies despite fears expressed by countries in Asia and Europe, the International Monetary Fund said on Wednesday.

“We don’t see evidence yet that Japanese policy has led to significant spillovers or capital outflows from Japan,” said David Lipton, first managing director of the IMF, during a press conference in Beijing.

During a week of meetings between the IMF and senior Chinese officials, including central bank governor Zhou Xiaochuan and state councillor Ma Kai, Mr Lipton said the Chinese government expressed concern about the Japanese economic programme known as “Abenomics”.

But “when we look at it we’re not seeing yet significant impacts on the Chinese economy”, Mr Lipton said. “We recognise the Japanese exchange rate has moved significantly since the policy began and that does have an impact on some countries, especially countries that compete with Japan as suppliers and find their relative competitiveness changed but we don’t think that’s an issue for China.”

Since the newly re-elected Japanese prime minister Shinzo Abe launched his plan to end deflation and kick-start Japanese growth late last year, the yen has depreciated from less than Y80 per dollar to about Y102 per dollar.

The IMF has been broadly supportive of the programme while attempting to remain sensitive to the concerns of other countries such as China, which see it as having a potentially destabilising impact on their economies.

“It’s a process they call Abenomics and it’s a process we think is an important one after 20-odd years of deflation and low growth,” Mr Lipton said on Wednesday.

China’s central bank is concerned about inflows of so-called “hot money” that evade the country’s relatively strict capital controls looking for higher rates of return than are available elsewhere.

Chinese officials believe that Japan’s easing policies have already led to some hot money inflows in recent months, according to diplomats familiar with the thinking of financial regulatory authorities in China.

Officials and economists have identified strong evidence in recent months of capital inflows disguised as trade by companies that over-invoice for exports as a way of exchanging more foreign currency into renminbi and evading capital controls.

But some experts say Beijing is not yet panicking about the spillover effect of Abenomics and is calculating that the policies will in fact be shortlived.

“We think Abenomics is a temporary phenomenon that is aimed at consolidating Abe’s political power and winning parliamentary elections in July,” said Zhang Haochuan, associate professor at the Center for Japanese Studies at Fudan University. “But if the Yen stays low or depreciates further then China can also depreciate the renminbi to resist the attack from Yen depreciation on our enterprises.”

The IMF lowered its 2013 growth forecast for China on Wednesday, from 8 per cent to 7.75 per cent, citing weak global conditions and lacklustre Chinese exports.

That estimate is still higher than the Chinese government’s target of 7.5 per cent growth this year. but it follows a series of downgrades from economists at global banks who believe the world’s second-largest economy is slowing more than expected.

“The pace of the economy should pick up moderately in the second half of the year, as the recent credit expansion gains traction and in line with a projected mild pick-up in the global economy,” Mr Lipton said on Wednesday. But “China’s economy faces important challenges. In particular, the rapid growth in total social financing – a broad measure of credit – raises concerns about the quality of investment and its impact on repayment capacity.”

Additional reporting by Gu Yu

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