Krishna Srinivasan, director of IMF’s Asia and Pacific Department, has expressed concerns over uncertainty in Japan’s monetary policy direction amid rising inflation.
He stated in a press briefing, “Japanese government bond yields have increased notably since October. Changes in Japan’s monetary policy that lead to further increases in government bond yields could have global spillovers through Japanese investors, who have large investment positions in debt instruments abroad.”
Srinivasan also warned that portfolio rebalancing by these investors could potentially trigger a rise in global yields, “causing portfolio outflows for some countries”.
Regarding China, he noted that over the medium term, a slowdown in productivity and investment is expected, which would lower growth below 4 percent by 2028. This could have profound adverse implications for the rest of the region, given their strong trade linkages with China.
Srinivasan also highlighted the risk of the global economy fragmenting into trading blocs, saying, “If this happens, the larger exposures will be to Asian economies that currently export significantly to the US and Europe, and those that are currently part of global value chains that see them export intermediate goods to China for use in Chinese exports.”
