Capital Flow Dynamics and Central Banks - Lessons from the Asian Financial Crisis and Challenges Ahead -

Sohei Iwai, Shingo Konaka, Marcel Hisamitsu and Hideki Nonoguchi
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Sohei Iwai: Bank of Japan
Shingo Konaka: Bank of Japan
Marcel Hisamitsu: Bank of Japan
Hideki Nonoguchi: Bank of Japan

No 17-E-5, Bank of Japan Review Series from Bank of Japan

Abstract: Asian capital flow dynamics which had been on an inflow trend that started in the early 2000s, has shown signs of change against a background of the normalization of U.S. monetary policy. This is drawing attention towards the resilience of emerging economies against capital outflows. While various initiatives drawn from the lessons learned in the Asian financial crisis have enhanced the resilence of Asian countries against capital outflows, there are new concerns, such as the increase in foreign currency-denominated bonds and domestic bonds held by foreign investors. In addition, the change in capital flows presents Asian central banks with the challenge of firmly establishing a transmission mechanism for monetary policy by controlling domestic interest rates. Specifically, money markets need to be developed further by enhancing central banks' funds-providing operations and by stimulating transactions between market participants. The Bank of Japan has been providing international financial cooperation to support such efforts in Asia.

Date: 2017-07-26
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