Japan's QQE poses risks to financial stability

CAPITAL flowing from Japan into other Asian economies following the Bank of Japan's massive monetary easing exercises could accelerate as banks reallocate their assets overseas, posing potential risks to financial stability, a senior IMF official warned in Tokyo yesterday.

Comments made by deputy managing director Naoyuki Shinohara during a debate among high-level Asian financial officials pointed to an apparent policy split between the IMF and the Japanese central bank over when to begin preparing an "exit" from the "aggressive" easing.

"Capital has indeed left Japan (since the BOJ launched its QQE policy), but so far it has mostly flowed to developed economies and especially into US bond and equity markets," Mr Shinohara told a government supported seminar at Hitotsubashi University. QQE is short for quantitative and qualitative easing.