Japan’s drive to revive growth may boost Southeast Asian nations as rising demand in the world’s No. 3 economy spurs orders and Japanese companies take advantage of cheap funding to invest in the region.
Indonesia, Thailand and Malaysia are identified by HSBC Holdings PLC and Credit Suisse Group AG to be among the biggest beneficiaries of Japanese monetary easing and a ￥10.3 trillion (US$115 billion) stimulus by Japanese Prime Minister Shinzo Abe, who wrapped up a tour of Southeast Asia on Friday.
In contrast, South Korea may suffer as a weakening yen makes its rival’s automotive and electronics exports more competitive, say Credit Suisse and Australia & New Zealand Banking Group Ltd (ANZ).
The wave of cheap funds “will drive Japanese companies and banks to raise investments and expand in Southeast Asia,” HSBC co-head of Asian economics research in Hong Kong Frederic Neumann said in an interview. “This will spur asset prices, investment, consumption and could single-handedly help these economies sustain high levels of growth in 2013.”
Abe is exerting pressure on the central bank to bolster an economy that has experienced three recessions in five years as he seeks to rejuvenate a nation whose investments helped spur Southeast Asia’s boom in the early 1990s.
Lower borrowing costs at home may add momentum to plans by Japanese companies to expand overseas, with Toyota Motor Corp announcing in November last year it will increase production in Indonesia.
The nation’s seventh prime minister in six years has called for “bold monetary policy” to defeat deflation and drive the yen lower.
The Bank of Japan, which started a two-day policy meeting yesterday, will adopt the 2 percent inflation target advocated by Abe, doubling its current 1 percent goal, according to people familiar with central bank officials’ discussions.
The prospect of additional policy easing has helped send the yen down about 10 percent versus the dollar and push the Asia excluding Japan stocks gauge up 11 percent in the two months ended Friday.
It has also lifted prospects for Asian emerging-market bonds and currencies as investors seek higher returns.
“Not only is the US implementing more quantitative easing, but Japan has joined the party,” said Jason Mortimer, a rates and options strategist at JPMorgan Chase & Co in Hong Kong.
“You’re going to have even more pressure on currencies to appreciate, especially in emerging-market Asia where currencies are undervalued. This is a very compelling investment opportunity,” he said.
Commodity exporters such as Indonesia and Malaysia are best positioned to benefit from stronger domestic demand in Japan, according to a Credit Suisse report on Wednesday that analyzed each Asian economy’s exports to the country, excluding industrial supplies and machinery parts that are less likely to be destined for consumer demand.
“The winners would be countries which have Japan as both their ‘suppliers’ and ‘consumers’ while the losers would be those whose exports are similar to and compete with those from Japan,” Credit Suisse economist Santitarn Sathirathai wrote in the report.
A recovery in Japan would provide a further boost to a region where government spending and rising investment have helped support growth.
The Asian Development Bank last month lifted forecasts for Southeast Asian expansion even as the global outlook faltered, after policymakers took steps to bolster their economies, with Malaysian Prime Minister Najib Razak increasing outlays and Philippine President Benigno Aquino III speeding up infrastructure projects.
Japan’s stimulus and a weaker currency may also bring risks. ANZ said a declining yen will hurt overseas suppliers as shipments become more expensive. Net exporters including Malaysia, the Philippines and Indonesia may suffer while net importers of Japanese goods such as Hong Kong, Thailand and Taiwan will probably gain, Eugenia Victorino, an economist at ANZ in Singapore, wrote in a Jan. 10 report.
South Korea is most vulnerable to the currency effect, Credit Suisse said, while Daiwa Capital Markets estimates the country’s technology companies, shipbuilders and automakers, including Kia Motors Corp, may be among the biggest losers.
Gains in the won prompted South Korea’s central bank to announce in November last year that it would tighten limits on currency forward positions at banks.
The Bank of Korea this month lowered its growth forecast for this year, highlighting obstacles to a rebound that include currency appreciation.