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South Korea's central bank also cut its benchmark interest rate by a quarter percentage point to 2.5 percent. India and Europe have also reduced key interest rates. And New Zealand's central bank intervened in the currency market this month for the first time in five years, seeking to curb a 12 percent rise in the Kiwi dollar since the middle of last year. The Philippine central bank is also thought to be intervening in the foreign exchange market by buying dollars to curb the peso's rise. Apart from the risks of escalating devaluations, such tactics may be the wrong medicine for economies such as Indonesia and the Philippines that already are awash with cash, says Rob Subbaraman, chief Asia economist for Nomura. Some worry that Japan's aggressive drive to reduce interest rates, paired with similar programs in the West and China's efforts to spur lending, could inflate dangerous bubbles in assets like stocks or real estate. On Wednesday, U.S. Federal Reserve Chairman Ben Bernanke signaled his belief that it's too soon for the Fed to curtail its stimulus programs, which are intended to encourage borrowing and spending. The 10-nation Association of Southeast Asian Nations recently voiced such concern in a joint statement with the Asian Development Bank that noted potentially "excessive risk taking and leverage, credit expansion and asset bubbles." Apart from overheating property markets, economists see signs of trouble in corporate and consumer debt. Such debt has jumped 67 percent in the past five years in Asia outside Japan to $1.66 trillion, according to Euromonitor International. "I worry about the debt buildup," Subbaraman says. "Frothy property markets from China to Hong Kong to Mumbai to Manila." Until recently, Asian financial markets had seemed sturdier than those in wealthier Western countries. "They are not as strong as they were before the global crisis," Subbaraman says. Double-digit gains in share prices in many regional stock markets, where price-to-earnings ratios used to judge value are veering higher, are another worrisome sign, says Rajiv Biswas, an economist with IHS in Singapore. In Japan, Abenomics is so far having a mixed effect. Automakers and electronics makers are enjoying higher profits. But energy-intensive steel mills and utilities are struggling with surging costs for fuel and other key commodities when valued in yen. Utility rates and prices of basic necessities, such as noodles, flour and oil are also rising. Pay has risen only modestly and only for some workers. And long-term interest rates that the Bank of Japan is maneuvering to try to keep low have risen. Mortgage lenders have tweaked their own rates higher. As the yen has fallen, investors in Japan and elsewhere have begun shifting assets into shares and into overseas investments in search of higher yields. Japan's net overseas portfolio investments, including equity securities, bonds and money market instruments rose to nearly 2.5 trillion yen ($24.4 billion) in March from minus 1.87 trillion yen (minus $18.2 billion) in September. The search for higher returns by Japan's megabanks and insurers, and other investors, is keeping brokerage AB Capital Securities in Manila, the Philippines, busy. "We've managed to be in the spotlight of most fund managers who are looking for high yields," says Jose Vistan, its head of research. "A lot of money that would have gone to the major markets has been coming here to the Philippines, and a testament to that would be the record high levels of the equities market."
[Associated
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