Asia to resist capital inflows

Oct 12, 2010 |

Reuters

Bangkok/Beijing, Oct. 12: Thailand has slapped a tax on foreign investment in government debt on Tuesday, Japan said it could intervene anew to weaken the yen and China again talked down the prospects of a faster rise in the yuan.

After the failure of a weekend International Monetary Fund meeting to defuse escalating forex tensions, Asian governments are redoubling efforts to resist capital inflows that are boosting their currencies and undercutting their export competitiveness.

Thailand’s cabinet has agreed to impose a 15 per cent withholding tax on capital gains and interest income from foreign investment in government debt in a bid to curb the baht, which is at its highest since the 1997 Asian crisis.

The announcement by Thailand came a week after Brazil doubled a tax on foreign portfolio inflows.

With the dollar hovering near 15-year lows against the yen, Japan said it would wade into the foreign exchange market again if need be. And the People’s Bank of China applied the brakes to the yuan by setting a weaker midpoint reference rate for the day’s trading. China and other countries counter that the prospect of the Federal Reserve printing money again will flood the world economy with more liquidity, weaken the dollar and push emerging currencies yet higher.

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