The Japan government recently started its quantitative easing (QE) policies putting pressure on other Asia currencies. Taiwan's premier Sean Chen has urged Taiwan's central bank to adopt necessary measures to stabilize domestic prices and maintain export competitiveness.
Abenomics (referring to Japan prime minister Shinzo Abe's economic policies) has resulted in the QE polices and set an inflation target in order to stimulate the country's economy. These policies are opposite to the economic policies that most other governments in the world are currently practicing.
Premier Chen noted that the QE measures adopted by the US - from QE1 to QE3 - have sent massive amounts of hot money rushing to Asia and emerging economies. Other countries would usually set an inflation target, but Japan's measure is a unique one by both setting an inflation target and adopting QE policies, said Chen.
Japan has been a supplier of key components, materials, core processes and equipment for Taiwan's industries. Chen added that the strong depreciation of the Japanese yen may benefit firms importing products from Japan but may negatively impact exporters. Chen asked the Ministry of Economic Affairs to negotiate with importers to lower the prices of imported goods to benefit Taiwan's customers and encourage exporters to use measures such as foreign currency time deposits to maintain competitiveness.
Taiwan and Japan have been working closely and in 2012, investments from Japan increased significantly. However, incentives for Japan-based firms to invest in Taiwan may start to decrease in 2013 due to Abenomics and the depreciation of the yen. On this issue, Chen believes currency fluctuations are not the only indicator for Japan-based firms making international investment decisions. In addition, Chen noted, Japan-based firms will have a better chance to develop the markets in Asia Pacific and other parts of the world by taking advantage of cooperation with Taiwan-based firms because Taiwan has signed the Economic Cooperation Framework Agreement (ECFA) with China.
Japan's recent QE policies have been able to depreciate the yen by 10% against the US dollar. Oddly, South Korea's currency has been appreciating significantly, and has reached its strongest levels since August 2011, despite the fact that the country is one of the strongest export competitors for Taiwan and Japan.
Medai reports have noted that South Korea's central bank has yet to adopt measures to depreciate the won. The reports showed that although this type of policy adopted by the South Korea central bank is unfavorable to South Korea-based exporters, it is greatly beneficial to South Korea-based firms that obtain important technology from Japan or acquire Japan-based firms.
