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Indonesia 'biggest winner' in Japanese stimulus

Publication Date : 17-01-2013


Indonesia tops the list of nine Asian countries that will reap benefits from the economic reforms recently unveiled by Japanese Prime Minister Shinzo Abe in his bid for stronger domestic demand and a weaker yen, Credit Suisse says.

In its research note released on Wednesday, the Switzerland-based bank says Indonesia will be the country that gains most from the expected economic recovery in Japan. It puts South Korea at the bottom of the ranking as the most vulnerable economy due to its export competition with Japan.

“Since Indonesia exports a lot of end-user products such as commodities — mainly mineral fuels and lubricants — to Japan, it will benefit from a potential pick-up in Japan’s domestic demand,” Singapore-based Credit Suisse economist Santitarn Sathirathai said in an email interview yesterday.

Abe, who is scheduled to meet President Susilo Bambang Yudhoyono in Jakarta on Friday, recently unveiled an economic stimulus and monetary easing package as part of his plan to revive Japan’s economy, which has long been trapped in a deflationary spiral.

His economic reforms include a 10.3 trillion yen (US$116 billion) stimulus that the Japanese government claims will boost its gross domestic product by 2 per cent and add 600,000 jobs.

With regard to the monetary side, Abe has ordered the Bank of Japan to double its inflation target to 2 per cent, calling for “bold” leadership at the central bank.

According to Credit Suisse, Indonesia will surpass Malaysia and Thailand in benefiting from the Japanese reforms because of its roles as both a “supplier” and “consumer” for Japan. Malaysia and Thailand also export a substantial volume of goods to Japan, but their imports are of less significance.

Japan is Indonesia’s second-biggest export destination after China, accounting for 11.3 per cent of Indonesia’s total non-oil and gas exports worth $15.9 billion during the January-November period in 2012.

Japan is also Indonesia’s second-biggest source of foreign direct investment after Singapore, with Japanese companies realising $1.8 billion in investments in the January-September period last year.

Satirathai said that because Southeast Asia’s largest economy imported many intermediate goods from Japan, the expected weaker Japanese yen would make the goods cheaper and, consequently, benefit Indonesia.

Analysts have said that Abe’s economic policies will eventually result in a weaker yen, a situation that is good for Japan’s economy as the currency has been too strong for too long, undermining that country’s trade competitiveness.

As of Jan. 16, the Japanese yen had already depreciated by 13 per cent against the US dollar from its peak in September, a change that was described by Credit Suisse as “dramatic”.

Credit Suisse’s report also notes that Southeast Asian economies, including Indonesia, are also likely to benefit from Japan’s rising political tension with China, given the expectation that Japanese companies will turn to the region to expand their manufacturing facilities.


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