East Asia’s financial markets are vulnerable to a sudden unwinding of yen-carry trades and withdrawal of the capital that has lifted many of the region’s currencies, according to the Asian Development Bank.

In its latest semi-annual report, the bank warned Thursday that political and monetary authorities in the region, which last year witnessed a record $269bn in capital inflows, needed to forge ahead with measures to prepare for a sudden reversal. The bank’s recommendations ranged from greater currency flexibility to a further liberalisation of capital outflows and tighter financial market supervision.