In his recent visit to Japan, Prime Minister Tun Dr Mahathir Mohamad has asked Japan to consider providing soft loans to help deal with the country’s financial problems. Picture by BERNAMA.

KUALA LUMPUR: The Japanese government will be in favour to extend Yen credit to Malaysia which would also further strengthen the relationship between two countries.

Economist Dr Yeah Kim Leng said the Japanese government would not have any concern about Malaysian’s government ability of repayment.

“From the national perspective, Japan has already importing sizeable amounts of crude oil and natural gas from Malaysia,” he told NST Business, today.

In his recent visit to Japan, Prime Minister Tun Dr Mahathir Mohamad has asked Japan to consider providing soft loans to help deal with the country’s financial problems.

Yeah said the yen credit extension was relatively safe based on Japan’s credit risk perspective.

“I think there is very little credit risk in terms of repayment, largely because Malaysia has sizeable exports volume to Japan. The country will be able to generate yen export earnings to repay the debt,” he added.

Japanese Prime Minister Shinzo Abe, during Dr Mahathir’s courtesy call, said they would study the request. However, there was no specific amount was discussed.

Yeah said the Japanese government has the financial capacity in extending loans for overseas development or financial assistance.

“It makes good economic sense to substitute more expensive debts, which cheaper yen credit,” Yeah said, adding that soft loans could be used to reduce the government’s debt servicing burden.

Yeah said it will not be feasible for Malaysia to use the soft loans to embark on the new mega-infrastructure projects.

Instead the primary focus should be reducing its current debt level, which is more expensive to service.

“The measure will also further help to improve investors’ confidence and make the government’s financial capacity to remain intact,” he said.

Yeah pointed out the yen credit extension if succeed would signal investor’s confidence in Malaysia.

“There is a good chance of the assistance from the Japanese government including the country’s financial institution to assist Malaysian government to reduce its debt servicing burden by substituting with cheaper credit (loans with lower interest),” he said.

Inter-Pacific Research head of research Pong Teng Siew said it is most likely the Japanese government is positioning itself to compete against China for influence in this region.

“This is a good time for the Japanese to win back some influence in Malaysia. This development is quite welcomed,” he assured.

He said it was a good opportunity for Malaysia to take advantage on this soft loan to refinance its expensive debts.

“However, the government should be careful of this opportunity because the Japanese Yen is strengthening against the US dollar,” he said.

Although Malaysia can enjoy lower rates, Pong cautioned that savings of a few billions in lower interest rate could offset by the translation value of the higher Japanese yen against the ringgit.

“We need to be cautious about that possibility of the strengthening of Japanese Yen against the US dollar. We might have to pay lower interest with the possibility of Yen strengthening,” he said.

The federal debt had breached RM1 trillion mark and the current administration is in the midst of reducing the debt.