WEAK JAPANESE YEN (Impact on Singapore economy)

Mr Ang Mong Seng asked the Minister for Finance what impact the weakening of the Japanese yen will have on the Singapore economy as well as on the ASEAN countries.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, Japan is a significant export market for the regional economies including Singapore. It accounted for 18% of regional (Indonesia, Thailand, Malaysia, the Philippines and Brunei) exports and 7.6% of Singapore's total non-oil domestic exports in 1997. A falling yen would raise the prices of imported goods into Japan and further dampen the weak demand for regional imports including those from Singapore. Japan is also an important market for Singapore's services exports. For example, it is our second largest single market for tourism, accounting for 15% of total visitor arrivals in 1997. A continuing weakening of the yen would lead to a further decline in Japanese arrivals and aggravate the slowdown in retail, restaurant and hotel businesses.

The region has also been a major recipient of Japanese foreign capital. Direct investments from Japan have accounted for an increasing share of total foreign direct investment approvals in ASEAN-3, which are Indonesia, Thailand and Malaysia, from 15% in 1992 to 24% in 1996. In Singapore, Japan contributed a significant 21.5% of total FDI inflow between 1990-95. A weakening of the yen would adversely affect Japanese companies' overseas expansion plans. This could have a dampening effect on the growth of Japanese investments in the region.

Moreover, a weakening of the yen is likely to exacerbate the weak balance sheet position of Japanese banks, which would lead to a further consolidation of Japanese international banking activities, including those in the Asian Dollar Market in Singapore. This would in turn adversely affect the growth of the financial services sector in Singapore.

As a significant exporter of electronics goods, Japan also competes with Singapore and some of the other regional economies in major markets such as the United States and Europe. The continued depreciation of the yen will therefore exert greater competitive pressure on regional exports. Finally, as shown by events in recent weeks, a weakening of the yen has a tendency to unsettle regional financial markets.