HONG KONG (Reuters) - A firmer U.S. dollar is positive for Japan, even as Donald Trump’s victory in the presidential election added to uncertainty over the Asian economic outlook, chief Asia Pacific economist for Goldman Sachs said.
The dollar sprinted to a more than 13-1/2 year high against a basket of major currencies on Friday and U.S. debt yields hit near one-year highs on expectations that Trump’s policies will boost the U.S. economy.
With weak domestic activity casting doubt on hopes for a sustainable recovery in Japan, Bank of Japan Governor Haruhiko Kuroda said this week the central bank was watching yen moves carefully as they have a “big impact” on the economy and prices.
Andrew Tilton of Goldman Sachs (GS.N) said: “More Fed tightening and a stronger dollar is probably good for Japan. Japan is a very low-inflation country that is trying to stimulate the economy... but can’t really lower rates feasibly much further.”
“So if the U.S. can raise rates and raise the currency versus the yen, then yen can depreciate without Japan having to do anything else,” he told the Reuters Global Investment Outlook Summit in Hong Kong.
“For Japan, this is great news.”
Trump lambasted China throughout the U.S. election campaign, pledging to slap 45 percent tariffs on imported Chinese goods and to label it a currency manipulator on his first day in office.
While there are uncertainties on the Trump administration’s trade policies and stance toward the world’s second-largest economy, Tilton said the impact on China could be “quite significant” depending on the measures taken.
“It’s a non-trivial impact on Chinese growth,” Tilton said, adding that the impact can be up to a couple of percentage points on the country’s gross domestic product over the next few years.
“So that can be quite significant depending on precisely what was done and how closely they approach some of the things he said during the campaign.”
On Indian Prime Minister Narendra Modi’s order to withdraw large denomination banknotes from circulation to fight tax evasion, corruption and forgery, the Goldman economist said the move would dent short-term economic activity.
“That really is the key uncertainty at this point - when will things get back to normal in terms of cash circulation or get back to a level of cash circulation that can support the level of activity that we had a few weeks ago.”
Reporting by Sumeet Chatterjee, Lisa Jucca and Denny Thomas