On April 4th, the Bank of Japan shocked the world by unveiling a stimulus package that plans to inject $1.4 trillion into the Japan economy over the next two years. This large stimulus package is designed to help Japan out of a deflationary cycle and end two years of stagnation.
With this large amount of cash flowing into Eastern Asia, some worry that the wall of money that will flow into emerging markets may cause inflation and asset bubbles. However, World Bank chief Economist for East Asia and Pacific, Bert Hofman, was confident about the BOJ’s plans. He explained that if Japan can get out of this deflationary period, it would benefit all in the EAP (Eastern Asia and Pacific) region and the world economy. These emerging markets produce inputs used by Japanese industry and by investing in this region it would help increase productive capacity and boost potential output.
Just recently, the World Bank released growth expectations for the region, amounting to 7.8% regional growth for 2013 and 7.6% in 2014-2015. Three large drivers for this forecast include Indonesia, Thailand and Malaysia. These countries are important to the region due to their component production for Japanese exporters. Recently, some believe that these countries are reaching their current productive capacity. If Japans stimulus drives money into the markets though, it would boost productive capacity, increasing output. Hopefully, this is the outcome and Japan can finally grow again.