Japan Seeks to Boost Financial Ties With Asean Amid China Row

Japan said it will boost financial cooperation with Southeast Asian nations, support their bond markets and make it easier for Japanese companies to raise funds in local currencies.

Asia’s second-largest economy will also consider reviving emergency monetary arrangements with Malaysia, Singapore and Thailand, the Japanese finance ministry said in a statement after a meeting of finance ministers and central bankers from Japan and the Association of Southeast Asian Nations, or Asean, near New Delhi on May 3.

Japan is strengthening ties with countries in the region as it tries to revive growth and as tensions with China escalate over a territorial dispute. Japanese companies are increasing investment in the 10 members of the Asean group as they seek to counter the fallout from the row with China that’s damaged a $340 billion trade relationship.

“Asean is the region where Japan needs to place the biggest importance down the road given its economic growth,” Finance Minister Taro Aso said at a briefing on May 3. The measures will help “Japan and Asean nations to achieve economic growth and build a win-win relationship,” he said.

The International Monetary Fund estimated last month that Asean economies will expand 5.5 percent this year compared with the 1.2 percent pace of advanced economies, including 1.6 percent in Japan.

Important Discussions

Aso spoke after a meeting with his Asean counterparts in Greater Noida near New Delhi, where the Asian Development Bank is holding its annual meeting. Finance ministers and central bankers from China skipped a separate “Asean-plus-three” meeting held earlier in the day.

Zhu Guangyao, China’s vice finance minister, denied that Finance Minister Lou Jiwei and People’s Bank of China Governor Zhou Xiaochuan missed the event because of tensions with Japan. They remained in China for “domestic important discussions,” he said, adding that economic and financial issues are “separate from the political side.”

A meeting between the finance ministers of China, South Korea and Japan due to take place at the ADB meeting was called off last month, according to a statement issued by Japan’s Finance Ministry on April 26.

Prime Minister Shinzo Abe visited Indonesia, Vietnam and Thailand in January to strengthen bonds with Southeast Asian nations, some of which are also involved in territorial disputes with China.

Japan and China both claim sovereignty over islands in the East China Sea known as Diaoyu in Chinese and Senkaku in Japanese. Abe vowed last month to protect the islands by force if necessary after marine patrols from both sides circled each other.

Improve Cooperation

Japan will set up bilateral working groups with Indonesia, Malaysia, Singapore, the Philippines and Thailand to discuss ways to improve cooperation, according to the finance ministry’s statement.

Discussions will include how to promote the use of Asean currencies by Japanese companies that develop their businesses in the region, it said. The two sides will consider a plan that will allow Japanese banks to borrow from the Singapore and Thailand central banks using Japanese government bonds as collateral, the finance ministry said.

Japan’s foreign direct investment in Asean countries more than doubled to $19.6 billion in 2011, according to Japan External Trade Organization figures using finance ministry data. In the same period, FDI to China and Hong Kong rose 52 percent to about $14 billion.

Sumitomo Mitsui Construction Co. and a group of companies won a 3.6 trillion-rupiah ($370 million) contract from Indonesia to build an underground tunnel for a proposed mass rapid transit system in Jakarta, city Governor Joko Widodo announced last week.

Reviving Swaps

To encourage the development of regional bond markets, Japan has invested in the Pan Asia Bond Index Fund, which invests in government bonds issued by Indonesia, Malaysia, the Philippines, Singapore and Thailand, the finance ministry said. It didn’t specify the amount.

To shield the region from another global financial crisis, Japan will consider reviving bilateral currency swap agreements with Malaysia, Singapore and Thailand, it said.

Japan, China, South Korea and Asean last year agreed to double the so-called Chiang Mai Initiative Multilateralization agreement to $240 billion, to provide additional liquidity if their currencies come under attack.

Asean countries comprise Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE