Policymakers in Asia are facing increasing pressure to step in and stem the rise in their currencies because of the problematic side effects of quantitative easing in the U.S, CNBC reported.
Excess liquidity generated by the third round of quantitative easing in September has quickly made its way into Asian markets, as investors search for higher yields.
According to CNBC, The Hong Kong Monetary Authority was the latest to intervene in the currency market with the city’s central bank selling HKD603 million (US$77.8 million) on Saturday after the currency hit the upper limit of its trading range.
Central banks in Asia spent US$18 billion in September to curb the rise in their currencies, according to data from Macquarie Bank. That is the highest level since January of this year.
The Bank of Japan has been the most active in weakening its currency while Chinese yuan, Korean won and Singapore dollar have seen the greatest appreciation in their value against the U.S. dollar.
Alongside the appreciation in Asian currencies has been a rapid rise in the region’s equity markets, with the MSCI Emerging Markets Index up around eight percent since mid-August.
The risk of asset bubbles in equity and real estate markets is growing, said experts, particularly in Hong Kong.
“The U.S. dollar glut is a bane, it will distort valuations, push up house prices and rents even further, and once again raise the specter of inflation when we least need it,” Uwe Papart, head of research at Reorient Group, said.
Home prices in Hong Kong have risen by almost three percent since the latest round of monetary easing on Sept. 14, according to the South China Morning Post.
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