East Asia Updates - June 2017

Abstract

The Fed is pressing on with its plans to start shrinking its US$4.5 trillion balance sheet this year by reducing reinvestment of maturing bonds, in practice reducing its holdings of US Treasury securities by stopping reinvesting the principal of securities when they mature. Although the immediate impact of the hike on East Asia’s developing economies will be limited, the monetary authorities are cautious about the Fed’s plan to reduce its holdings of US Treasury securities as it may affect financial market players’ portfolio allocations in that they are likely to increase their US treasury security holdings at the expense of developing country assets.