Asian central banks have been taking aggressive and creative actions to support their economies. Policy rate cuts and enhancing liquidity in their interbank markets are the basic measures adopted by most, if not all, of the central banks around the region.

Here are examples of measures taken and selected countries that have adopted these measures:

• Purchasing government debt: Indonesia, Japan, Korea, Philippines, Thailand
• Purchasing corporate debt: India, Japan, Korea, Thailand
• Measures or facilities to promote lending to small and medium-sized enterprises (SMEs): India, Korea, Philippines, Singapore, Thailand
• Loan forbearance or relaxed provisioning requirement: China, Malaysia, Philippines

Asian central banks are able to adopt such a broad range of measures partly due to the ultra-loose monetary policy in developed markets. Hence, they can focus on supporting their economies instead of defending against capital outflows. We expect many of these provisional measures to be extended to the end of the year, or until their economies are in a sustainable recovery. Room for rate cuts is probably more limited, given that real yields in most Asian markets are already quite low, and the current problem is liquidity instead of borrowing costs.

Exhibit 1: Real yields already low in most Asian markets 

Source: FactSet, various central banks, J.P. Morgan Asset Management; (Top) International Monetary Fund.
*Real yield is calculated based on the last 12-month average Consumer Price Index for each respective market covering data 28/06/19 – 29/05/20, except for Australia and India, which use average 30/04/19 – 31/03/20 CPI due to data availability. Nominal yields are the 10-year government bond yield for each respective market. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 30/06/20.

Investment implication

Unconventional monetary policies in Asia, especially asset purchases by central banks, would help to support both government and corporate debt in the region. Although we expect these measures to be withdrawn quicker than the developed market central banks, once the pandemic is contained, the search for income in a zero yield environment should support Asian fixed income in the medium to long term. Moreover, a global recovery would also be positive for risk appetite, prompting a weaker U.S. dollar and capital inflows into the region.