Flexibility can ensure dollar peg stays despite threat from Japan

Further attacks on the Hong Kong dollar peg cannot be ruled out, as the threat of a significant depreciation in the yen continues to cast a shadow over the regional currency outlook, a Lehman Brothers economist believes.

Global chief economist John Llewellyn said in Hong Kong at the investment bank's annual global economics conference that the threat from Brazil had probably been contained and that financial markets were in a less leveraged state.

'Japan is now the potential big shock, because its economy is dead in the water,' he said.

According to Mr Llewellyn, Lehman expects the Hong Kong dollar peg to stay, providing that the local economy remains flexible against a backdrop of global growth.

However, the investment bank has forecast that the world's economy will slow slightly this year, with the economies of the world's three main trading blocs - Asia, the United States and Europe - also slowing.

'The risk of shocks upsetting the world economy is greater when growth is slow, and we predict a slowing,' Mr Llewellyn said.