Stronger yen brings more capital inflows into M’sia: Experts

A stronger Japanese yen means stronger capital inflows into Malaysia via increased foreign direct investment (FDI), says Emir Research social, law and human rights head Jason Loh Seong Wei.

Commenting on the Bank of Japan’s (BOJ) decision to raise the overnight call rate, Loh told Sunbiz that the potential increase in capital inflows into Malaysia depends on the extent of the yen’s appreciation.

“A stronger yen indicates stronger purchasing power for Japanese consumers and businesses with implications on imports, including from Malaysia as a top trading partner.”

Loh also said that the increase in the overnight call rate by the BOJ is not expected to negatively impact the ringgit.

“The ringgit’s correlation with the yen isn’t as strong as ringgit-Chinese yuan. However, the ringgit tends to appreciate against yen when the latter strengthens against the greenback.

“This is due to market sentiments regarding the close trading and investment links between the two countries and, by extension and inclusion, also in relation to China.”

Meanwhile, Bank Muamalat chief economist Mohd Afzanizam Abdul Rashid said the impact of the BOJ interest rate hike on Malaysia is expected to be minimal.

He said this assessment is based on several factors, including the relatively low share of the yen in global trade settlements (only 5%) and the dominance of the US dollar in international transactions.

Similarly, Afzanizam said the BOJ decision for future rates are still highly uncertain as they may not aggressively raise their rates.

“Japan’s inflation rate is already on downward trajectory. They might need low interest rate regime to promote growth.”– by