Japan's announcement that it will use its foreign reserves to purchase bonds issued by the EU's financial bailout fund will help to decrease pressure for the baht's appreciation due to an increase of new capital from the Bank of Japan.
Chantavan Sucharitkul, the Bank of Thailand's assistant governor for financial market operations, said the central bank is monitoring discussions between Japan's new government and the Bank of Japan (BoJ) about increasing liquidity in a bid to fulfil a campaign promise of containing inflation at 2%.
The capital inflows from Japan may not be as high as expected if the government pursues its plan of purchasing bonds issued by the European Stability Mechanism (ESM) and euro-denominated bonds.
"We're monitoring where the Japanese investors move the excess liquidity. That country's plan to invest in ESM bonds could ease pressure on regional currency appreciation," said Ms Chantavan.
She said Japan's announcement of purchasing the euro-denominated and ESM bonds will likely aid the euro zone's debt restructuring and improve the global economic outlook.
The possible move by the BoJ to inject liquidity into its economy should not create a glut of capital inflows into the Thai economy, said Ms Chantavan.
"The history of Japanese investment in Thailand shows a preference for long-term capital investment in the real sector rather than short-term investment," said Ms Chantavan.
She said baht appreciation has stayed in the middle range for regional currencies, increasing by 2.69% from 31.28 to the US dollar a year ago to 30.44 yesterday.
Besides improving economic prospects, measures by the US central bank, the BoJ and the European Central Bank aimed at injecting money into their economies are another reason for the rise in capital inflows to the region.
The baht's exchange rate of 30.44 yesterday represented a 0.52% increase from 30.60 at the end of last year.
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- Writer: Parista Yuthamanop