(Corrects dateline to Washington, not Tokyo)
By Leika Kihara
WASHINGTON Oct 6 A disorderly reaction to
possible U.S. interest rate hikes could disrupt capital flows
and heighten asset price volatility in Asia, the International
Monetary Fund said on Thursday.
The prospect of subdued growth in advanced economies can
also create negative spillovers for emerging Asian nations as
weak exports weigh on the region's growth and inflation, the IMF
said in a report on the Asia-Pacific region.
"Should advanced economies continue to rely primarily on
unconventional monetary policies to lift growth, this could lead
to excess global liquidity, fanning capital flows to emerging
market economies and contributing to excessive currency
appreciation and deflation pressures," the report said.
A recent slew of firm U.S. economic data has pushed up the
dollar on market expectations the Federal Reserve could raise
interest rates in December.
Some central banks in the Asia-Pacific region may need to
weigh the pros and cons of prolonged ultra-loose monetary policy
with countries like Australia, South Korea and New Zealand
seeing heavy money printing boost housing prices, the report
The IMF welcomed the Bank of Japan's decision last month to
revamp its policy framework and commit to maintaining its
ultra-easy policy until inflation overshoots its 2 percent
"In Japan's case, monetary policy should remain focused on
lifting inflation and inflation expectations through further
easing if necessary and enhancing the Bank of Japan's
communication framework," it said.
The IMF urged Asian economies to ensure their currency rates
move flexibly. But it said foreign-exchange intervention should
be considered if rapid moves threaten financial stability.
"Foreign exchange intervention could also be considered if
rapid exchange rate movements are the result of illiquid or
one-sided markets," the report said.
Japanese policymakers have frequently threatened to
intervene in the currency market upon a yen spike, which they
argued as one-sided and threatened to derail a fragile recovery.
(Reporting by Leika Kihara; editing by Diane Craft)