Japan to give US$17bn in aid to Asia

Japanese prime minister Taro Aso has stated at the WEF in Davos, Switzerland, that his country would lend a minimum of $17bn to developing Asian countries.

This is not as generous a move as it may sound. Japan has a huge current account surplus as a result of it's successful manufacturing export sector. It's companies normally reinvest the money that they earn from countries like the United States and Australia back into these economies by way of loans to our governments. With the advent of the financial meltdown, risk free government bond prices have shot through the roof, providing very little yield for foreign investors, along with greater risk of declines in US dollar linked currencies eroding the marketable value of these assets for foreigners.

Japan is left with no option but to invest its US dollar earnings elsewhere, and the most likely recipients are developing countries in Asia, who would most likely invest the money in infrastructure or manufacturing plant and equipment... most of which is made in Japan.

This is good news for Australian commodity exporters though, as increased spending on heavy infrastructure in Asia will almost certainly increase demand for steel, base metals, lumber, coal and food.