Up to $140 billion in Japanese investment could flow into ASEAN countries, especially Thailand, Indonesia and Vietnam, with Malaysia and the Philippines secondary targets.
The effectiveness and effects of economic structural reforms in China, India and Japan are likely to be the regional story of 2014. These will play into other realities such as the continuing subpar performance of developing economies in Asia because of the slow global recovery from the 2008 crash and internal political uncertainties.
Then there's the possible effects of the tapering off of "quantitative easing" – large-scale money printing – by the United States Federal Reserve. The United Nations Economic and Social Commission for Asia and the Pacific reckons this could knock from 1.2% to 1.3% off the anticipated gross domestic product growth rates in Malaysia, the Philippines and Thailand.
Some economists, among them Frederic Neumann, co-head of Asian economics research at HSBC, believe that Japan will cushion the blow. Neumann said in a recent article he thinks the massive injection of liquidity into the economy by the Bank of Japan in 2013 will finally start to be felt as Japanese financial institutions start implementing their plans.
Much of that investment is likely to go to the 10 countries of the Association of Southeast Asian Nations (ASEAN), already a focus of Japan's powerful and influential corporations as costs and political frictions divert their interest from China.
Since returning to power a year ago, Japanese Prime Minister Shinzo Abe has visited all 10 ASEAN countries and signed agreements aimed at strengthening economic ties.
The anticipated Japanese investment may be affected by political uncertainty in Thailand and Indonesia, both of which face elections this year.
In Thailand, Prime Minister Yingluck Shinawatra has called early elections for February after massive anti-government demonstrations in Bangkok.
This is yet another episode in the political saga that started in 2006 when the army, prompted by senior people in the palace hierarchy around King Bhumibol Adulyadej, staged a coup and ousted Shinawatra's brother, former prime minister Thaksin Shinawatra.
In Indonesia there will be elections to succeed President Susilo Bambang Yudhoyono, who has guided the country through a decade of political stability, structural reform and impressive economic growth. But his departure comes amid a rise of economic nationalist sentiments that are ringing alarm bells with foreign investors.
In India general elections are scheduled for April and May. These could well bring the opposition Hindu nationalist Bharatiya Janata Party back to power, probably at the head of a coalition government. If so, many economic observers are betting this could give a boost to much-needed structural reforms and infrastructure investment.
China has just gone through a leadership change at the end of 2012 and beginning of 2013, but in November the new administration of President Xi Jinping announced plans for deepening and broadening economic reform. What these amount to and how enthusiastically they will be pursued remains unclear. That uncertainty is likely to dampen any significant rebound in the Chinese economy, which, although likely to grow at a relatively impressive 7%, is well below its performance in recent years.
Then there's the outlook for two of the region's most highly developed economies: South Korea and Taiwan. So far they have adjusted remarkably well to the competition for their products created by the sliding value of the Japanese yen.
How they would meet a continuing drop in the value of the Japanese currency is less certain. They might feel forced to move production to lower-cost countries in Southeast Asia or India, which would exacerbate the already significant problems of disparity between the rich and the rest at home. •
