By Makiko Yamazaki and Leika Kihara
TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda called for global cooperation on Wednesday, saying geopolitical tension could impact financial stability such as by causing sudden reversals of cross-border capital flows.
“Looking ahead, the resilience of Asian emerging market economies will be tested by rising geopolitical tension in several ways,” Ueda told a seminar hosted by the International Monetary Fund in Tokyo.
“An increase in geopolitical tension among countries could cause a sudden reversal of cross-border capital flows,” he said, adding that the consequences could be larger for emerging countries than for advanced countries.
Ueda also said global economic fragmentation could widen the divergence in monetary policy stance among central banks, which could potentially increase market volatility and have a destabilising effect on exchange-rate dynamics.
The larger presence of non-banks in global financial markets could lower the predictability of capital flows, he also said.
Given those possible implications of intensifying geopolitical tension, “Asian central banks and the IMF should continue deepening their cooperation,” Ueda said.
(Reporting by Makiko Yamazaki and Leika Kihara; Editing by Tom Hogue and Christopher Cushing)
