Japan's nuclear crisis may cause investors to factor in a higher "uncertainty premium" that drives up prices for oil and other assets, threatening the global economy, a finance leaders' group warned on Friday. The Institute of International Finance's market monitoring group, which includes top bankers and former policymakers, said Japan's troubles had prompted a global reconsideration of nuclear power.
That, combined with unrest in the oil-producing Arab world, was driving up medium-term oil price expectations. "The impact on the Japanese economy in isolation is likely to be contained, but the ripple effects could be substantial, and perhaps long-lasting," the institute's market monitoring group said in a statement.
The group, which was formed in 2009 as a response to the financial crisis, said a further sustained rise in energy prices would have "serious consequences for global growth, and, notably, for inflation." For emerging markets, where inflation pressures are most acute, the group encouraged "more resolute" monetary policy tightening and in some cases greater exchange rate flexibility. For advanced economies, it said rising oil prices could exacerbate risks to growth and make the already difficult task of paring public debt that much harder if central banks decided to speed up monetary tightening.
"Against this backdrop, investors are likely to re-evaluate ongoing strains in European debt markets," the group said. The group, which counts top European bank officials among its members, also said they welcomed European banking authority plans for more rigorous bank stress-testing, and said full transparency was essential to the tests' credibility.