Premier Sean Chen urged the Central Bank of the Republic of China (Taiwan) to keep tabs on the development of the Japanese government's quantitative easing (QE) policy and its impact on Taiwan's and its rivals' currency exchange rates.
Given that Japanese QE may force other Asian currencies to appreciate, the central bank should take necessary measures to maintain Taiwan's domestic price stability and foreign trade competitiveness and mitigate the economic and financial impact of large amounts of foreign capital entering and leaving the country, Chen said at today's Cabinet meeting.
Japan's strategy can be seen as a response to a large influx of short-term capital into Asia and emerging economies following the United States' three phases of QE, the premier indicated. "However, Japan's response is unique, because while other countries generally impose a ceiling on inflation, Japan has set a target for it instead," he said.
Although the depreciation of Japanese yen may lead to a reduction of costs for Taiwanese importers, it may also negatively impact exporters, noted Chen. He instructed the Ministry of Economic Affairs (MOEA) to coordinate with importers to reduce the prices of imports to benefit domestic consumers and encourage exporters to utilize exchange rate-related measures such as outright forward contracts, which lock in an exchange rate for a future purchase ahead of time as a hedge against future price changes, to ensure their competitiveness.
Premier Chen also stressed the importance of closely observing whether the depreciation of the yen will dampen Japanese businesses' interest in investing in Taiwan. He does not believe the exchange rate will be the only factor in business decisions but says Taiwan should be alert, since its industries and Japan's have long been complementary, with the latter supplying the former key components, raw materials, core production know-how and equipment.
Hence, Chen instructed the MOEA and other relevant agencies to keep exploiting the advantages derived from the Cross-Straits Economic Cooperation Framework Agreement to conduct industrial cooperation with the Japanese side, combining Taiwan's and Japan's industrial strengths to create new business opportunities in the Asia-Pacific and global markets.
Japanese policy, including tax policy, has often inspired Taiwan, the premier added. He said Taiwan's current tax reform to maintain financial health is in the spirit of Japan's basic principle of financial soundness and instructed the MOF to further research tax reform in Japan and related countries in order to better examine Taiwan's system and ensure it maintains stable tax revenues and fair taxation.
"Japan hopes to strengthen its fiscal discipline by curbing debt growth and achieving parity between government revenues and expenditures by 2020. Taiwan has strived in recent years to use national assets more efficiently, ameliorate its tax system and gradually cut down on the national debt through better-organized financial plans," remarked the premier. "The MOF and other agencies should continue to encourage private investment in infrastructure through multiple financial strategies in order to reduce national expenditure and enhance economic momentum."