Japan QE has neutral impact on Phl

MANILA, Philippines - The Philippines has a “neutral” exposure to Japan and the continued monetary easing on the world’s third largest economy would not likely result into excessive capital flows, the Bank of America-Merrill Lynch (BofA-ML) said in a report released yesterday.

Quantitative easing (QE) from Japan may impact on Asia through exchange rates, reflation and portfolio inflows or hot money, BofA-ML.

“Japan’s QE impact is more neutral for China, India, Indonesia and the Philippines,” the investment bank said.

Japan is trying to boost its economy by embarking on a multi-billion yen asset purchase program known as QE to swamp the economy with money and in the process boost consumer spending to achieve inflation and growth.

On the flipside though, lower rates tend to shun investors who then flock to other markets for better yields. This results into more capital inflows and, among others, more exchange rate pressures.

In the Philippines, the effect is seen “neutral,” with BofA-ML noting that only 2.8 percent of total investments to bonds and equities in the country came from Japan for the past seven years.

Japanese foreign direct investments (FDI) in the Philippines accounted for only 0.3 percent of the total, the bank pointed out.

The figures were lower compared with other Asian countries in BofA-ML radar. Singapore, with 30.8 percent of hot money coming from Japan, would likely experience a flood of bond and equity inflows.

Vietnam, on the other hand, would likely benefit from more FDI. From 2005 to 2012, the country sourced 2.1 percent of its total foreign investments from Japan.

“Over-all, how QE impacts Asia depends on whether Japan successfully reflates and how portfolios are adjusted,” BofA-ML said.

Nevertheless, the central bank would be ready to implement more macro-prudential measures in the face of more inflows, debt watcher Standard & Poor’s Ratings Services (S&P) said.

In a separate report released late Wednesday, S&P, while projecting “decent” growth for Asia, noted that risks from the debt crises in Europe and the US remain and that capital inflows to the region would likely persist.