KUWAIT CITY, Jan 26, (RTRS): The decline of the yen could spark a currency war in southeast Asia, Badr al-Saad, the head of Kuwait’s sovereign wealth fund, said in comments aired on Saturday.
The Chinese economy will grow between 7.7 percent to 8 percent over the next two years, far better than developed economies, al-Saad, the managing director of Kuwait Investment Authority (KIA), told pan-Arab network al-Arabiya at the World Economic Forum in Davos, Switzerland.

“The only fear is the decline of the yen. The decline of the yen could trigger a currency war in the countries of southeast Asia, this is the only fear we have at the moment,” he said.

The Japanese currency has weakened to about 90 per dollar from 80 since November on expectations Prime Minister Shinzo Abe will force the central bank to ease monetary policy to combat deflation.
KIA has been seeking to invest more in China and China’s foreign exchange regulator recently increased the amount which the KIA can invest directly in local securities markets to $1 billion.
Saad said that KIA has been investing in private equity funds where the returns are good and is shunning bonds because interest rates are so low.

“We have been investing in private equity funds lately ... the returns are good,” he said in rare public comments about the KIA’s investment strategy. He named Texas Pacific Group and CBC as two of the funds the KIA has been investing in.

He said the fund wanted to invest in upcoming infrastructure projects in Europe and the United States.
“We think that these countries need to develop their infrastructure. We think that investments in infrastructure will be big in the next five years,” he said.

The KIA manages two main funds. Its Future Generations Fund invests abroad and had assets under management worth 73.63 billion Kuwaiti dinars at the end of March 2012, according to media reports, or $261 billion at the current exchange rate.

The KIA, which does not officially disclose assets under management, also manages a general reserve fund, which acts as the main treasurer for the government and receives all revenues.

Meanwhile, Japan’s economy minister rejected criticism on Saturday that his country’s extraordinary fiscal and monetary stimulus programme was aimed at weakening the yen and undermined central bank independence.

Akira Amari told the World Economic Forum in Davos it was up to the market to determine the currency’s exchange rate, and the Bank of Japan had chosen independently to sign a joint statement with the government on actions to fight deflation and revive economic growth.

“You might think there’s a deliberate policy to drive down the value of the yen but we in government refrain from commenting on the exchange rate of the yen,” Amari said in response to criticism of Japanese action.

South Korea’s central bank governor questioned the efficacy of Japan’s easing of monetary policy and said the BOJ’s decision to start buying unlimited amounts of assets in 2014 could have unintended long-term consequences.

“What they did created a couple of problems,” Bank of Korea Governor Kim Chong-soo told Reuters in an interview in Davos. “One is that the level (of the currency) is affected, and the pace of change is also a problem. They did it too hastily.”

A stable exchange rate is key for the Bank of Korea, Kim added.

The yen has come under pressure since reports on Thursday quoted deputy economy minister Yasutoshi Nishimura as saying the yen’s decline was not over, and that a dollar/yen level of 100 would not be a concern.

The Japanese currency is now trading around a 2-1/2 year low against the dollar at around 90 yen, as the market remained focused on Japan’s pursuit of a reflationary economic policy.

Amari said the government and the BOJ had agreed on exceptional measures because Japan had to break a prolonged cycle of deflation and economic contraction.

Appearing on the same panel, International Monetary Fund Managing Director Christine Lagarde refrained from direct criticism but urged Japan to put forward a medium-term plan to reduce its public debt after this week’s measures.

“Japan has made very important decisions. We are very interested in these policies. We would like them to complement it with a mid-term plan on how the debt would be reduced,” Lagarde said.

Japan’s debt stood at 235 percent of gross domestic product before new Prime Minister Shinzo Abe announced a new deficit-financed stimulus programme this month. The BOJ said it was doubling its inflation target to 2 percent and would take new monetary stimulus measures.

Appearing on the same panel, Canadian central bank chief Mark Carney, soon to take over as governor of the Bank of England, said the Japanese policy as outlined did not breach the Group of Seven industrial nations’ policy understanding against unilateral currency intervention.

However a European Central Bank source, speaking on condition of anonymity, said the ECB was “not very happy” at what was seen as a step towards competitive devaluations and the Group of 20 major economies’ finance ministers and central bankers should address the issue next month.

“I guess this is a G20 issue that needs to be addressed there. It is potentially dangerous and we should avoid (currency wars),” the source said.

“It’s not a problem yet. But if they (Japan) continue in that direction and we see also what’s happening with quantitative easing in the United States and Britain, then we would be the only one who would not follow suit.

“The risk is that this would indeed have an effect on the exchange rate and that we would get into a dangerous situation,” the ECB source said.