Hong Kong's Tsang "Scared" US Now Inflating Japan-Type Bubble

SINGAPORE -- Hong Kong Chief Executive Donald Tsang expressed concern Friday that the U.S. may be following the example of Japan, tackling recession with overly loose policies that could inflate asset bubbles.

Tsang told a panel discussion on the sidelines of annual meetings of the Asia-Pacific Economic Cooperation forum that he was "scared" that the U.S. was following Japan from the bubble period of late 1980s.

As a result of low U.S. interest rates, there is now a "dollar carry trade" supplanting the former yen carry trade, he said.

This refers to trades that borrow low interest-rate currencies to buy higher-yielding assets. During times of market stability, carry trades offer easy profits, but when risk aversion rises, investors abandon such trades, causing further market turmoil.

Tsang said in earlier remarks that while the global economy is improving, "Gyrations in financial markets and bubbles in asset markets remain ahead of us."