* MARKETS
* SEPTEMBER 4, 2010
Asia Looks to Tame Currencies
Asian authorities stepped up the fight to curb their strong currencies Friday. Singapore intervened in the foreign-exchange market for the first time in months and Korea resumed its intervention after a two-week break, while Japan has signaled it is weighing entering the market for the first time in six years.
The Monetary Authority of Singapore sold the Singapore dollar after it hit an all-time high, "to smooth the U.S. dollar's fall," said a person familiar with the central bank's thinking. The Bank of Korea sold won for dollars, traders said, though the greenback remained weaker on the day.
In Japan, people familiar with the matter have said the government is more determined than ever to act against any unusually rapid yen rise—but would find it hard to intervene if the gains are gradual.
The developments in Asia highlight the difficulties policy makers face as their strengthening currencies threaten to crimp the growth in exports that is fueling the region's rebound.
Some Asian central banks, such as those in Taiwan and Thailand, are in the market regularly, but all of the region's interventions were aimed at smoothing their currencies' gains, not reversing the dollar's glide downward.
Asian currencies have been rising against the dollar this year, first as the global recovery encouraged investors to buy riskier assets and, more recently, as signs of a sharp U.S. slowdown have increased bets that the Federal Reserve will ease policy further. This decreases the attractiveness of dollar assets
The Singapore central bank defended the greenback after it fell to a record low S$1.3425, the person familiar with the situation said. The MAS, which formally targets a gradual rise in the local currency, hadn't intervened since April, despite the Singapore dollar's rise of more than 4% against the greenback this year.
The MAS "will continue to smooth the U.S. dollar's fall for now, but this is a regional issue with widespread weakness for the U.S. currency," the person said. The currencies of Singapore's trading partners will probably keep rising for now, in which case the MAS's role will be "to make sure that the rise is orderly."
This indicates Singapore won't fight hard against a rise in the local dollar as long as it's broadly in line with its Asian peers.
Similarly, if Japan starts selling yen, the aim would be to curb rapid moves, not to reverse the market trend, several people familiar with the matter said.
"If there are no 'excessive fluctuations' in exchange rates, and if the dollar falls against the yen only gradually, it would be very difficult to act," one of the people said. "It's unthinkable that [the government] will fight back against the market trend."
The ministry views a move by the dollar of several yen a day as volatile, people familiar with currency policy have said recently.
The yen is up some 10% this year, but Tokyo is strongly signaling that if it returns to the market it won't repeat its last intervention binge, when it sold 35 trillion yen over the 15 months to March 2004.
Adding to Japan's caution are the prospects that the U.S. Fed will whittle away what little interest-rate gap remains between the U.S. and Japan, as well as the fact that it would be a Herculean task to move the global foreign-exchange market, where volume is now $4 trillion a day.
Still, recent tough talk on the yen from Prime Minister Naoto Kan and Finance Minister Yoshihiko Noda was intended to show that Japan is on heightened alert against sharp market moves, the people said. Messrs. Kan and Noda have both vowed "decisive" action when needed, language that in the past has denoted intervention.
"The weight carried by that word is significantly heavy," one of the people said. Another said it shows the government is "resolutely prepared" for intervention.
Korea's central bank, one of Asia's serial interveners, stepped back into the market Friday after two weeks on the sidelines, buying an estimated $300 million-$400 million as the dollar fell to around 1,176 Korean won, Seoul traders said. But there too the aim was to slow the won's rise, not reverse it.
The dollar was at 1,177.6 Korean won late Friday, well below its level of 1,180.5 won late Thursday. The won is down for the year after falling sharply in the first half, but has rebounded more than 8% from its late-May low.
Asian currency strategies differ, of course. In Malaysia, where the ringgit, which hit a 13-year high against the dollar Friday and has led this year's rise among developing-economy currencies with a 10% climb, there has been no recent sign of the central bank, which views the rise as reflecting solid economic fundamentals.
The Bank of Thailand, by contrast, has intervened regularly to try to smooth out the baht's ascent, at 7% this year.
The outlier is China.
While other Asian countries are enduring strong currencies or warily attempting to temper the rise, Beijing is hardly letting the yuan budge. China ended the yuan's two-year peg to the dollar in mid-June but has barely let the local unit appreciate since then.
In fact, thanks to the central bank, the tightly controlled yuan has given up half of the modest gains it made in the first seven weeks of the new policy.
* SEPTEMBER 4, 2010
Asia Looks to Tame Currencies
Asian authorities stepped up the fight to curb their strong currencies Friday. Singapore intervened in the foreign-exchange market for the first time in months and Korea resumed its intervention after a two-week break, while Japan has signaled it is weighing entering the market for the first time in six years.
The Monetary Authority of Singapore sold the Singapore dollar after it hit an all-time high, "to smooth the U.S. dollar's fall," said a person familiar with the central bank's thinking. The Bank of Korea sold won for dollars, traders said, though the greenback remained weaker on the day.
In Japan, people familiar with the matter have said the government is more determined than ever to act against any unusually rapid yen rise—but would find it hard to intervene if the gains are gradual.
The developments in Asia highlight the difficulties policy makers face as their strengthening currencies threaten to crimp the growth in exports that is fueling the region's rebound.
Some Asian central banks, such as those in Taiwan and Thailand, are in the market regularly, but all of the region's interventions were aimed at smoothing their currencies' gains, not reversing the dollar's glide downward.
Asian currencies have been rising against the dollar this year, first as the global recovery encouraged investors to buy riskier assets and, more recently, as signs of a sharp U.S. slowdown have increased bets that the Federal Reserve will ease policy further. This decreases the attractiveness of dollar assets
The Singapore central bank defended the greenback after it fell to a record low S$1.3425, the person familiar with the situation said. The MAS, which formally targets a gradual rise in the local currency, hadn't intervened since April, despite the Singapore dollar's rise of more than 4% against the greenback this year.
The MAS "will continue to smooth the U.S. dollar's fall for now, but this is a regional issue with widespread weakness for the U.S. currency," the person said. The currencies of Singapore's trading partners will probably keep rising for now, in which case the MAS's role will be "to make sure that the rise is orderly."
This indicates Singapore won't fight hard against a rise in the local dollar as long as it's broadly in line with its Asian peers.
Similarly, if Japan starts selling yen, the aim would be to curb rapid moves, not to reverse the market trend, several people familiar with the matter said.
"If there are no 'excessive fluctuations' in exchange rates, and if the dollar falls against the yen only gradually, it would be very difficult to act," one of the people said. "It's unthinkable that [the government] will fight back against the market trend."
The ministry views a move by the dollar of several yen a day as volatile, people familiar with currency policy have said recently.
The yen is up some 10% this year, but Tokyo is strongly signaling that if it returns to the market it won't repeat its last intervention binge, when it sold 35 trillion yen over the 15 months to March 2004.
Adding to Japan's caution are the prospects that the U.S. Fed will whittle away what little interest-rate gap remains between the U.S. and Japan, as well as the fact that it would be a Herculean task to move the global foreign-exchange market, where volume is now $4 trillion a day.
Still, recent tough talk on the yen from Prime Minister Naoto Kan and Finance Minister Yoshihiko Noda was intended to show that Japan is on heightened alert against sharp market moves, the people said. Messrs. Kan and Noda have both vowed "decisive" action when needed, language that in the past has denoted intervention.
"The weight carried by that word is significantly heavy," one of the people said. Another said it shows the government is "resolutely prepared" for intervention.
Korea's central bank, one of Asia's serial interveners, stepped back into the market Friday after two weeks on the sidelines, buying an estimated $300 million-$400 million as the dollar fell to around 1,176 Korean won, Seoul traders said. But there too the aim was to slow the won's rise, not reverse it.
The dollar was at 1,177.6 Korean won late Friday, well below its level of 1,180.5 won late Thursday. The won is down for the year after falling sharply in the first half, but has rebounded more than 8% from its late-May low.
Asian currency strategies differ, of course. In Malaysia, where the ringgit, which hit a 13-year high against the dollar Friday and has led this year's rise among developing-economy currencies with a 10% climb, there has been no recent sign of the central bank, which views the rise as reflecting solid economic fundamentals.
The Bank of Thailand, by contrast, has intervened regularly to try to smooth out the baht's ascent, at 7% this year.
The outlier is China.
While other Asian countries are enduring strong currencies or warily attempting to temper the rise, Beijing is hardly letting the yuan budge. China ended the yuan's two-year peg to the dollar in mid-June but has barely let the local unit appreciate since then.
In fact, thanks to the central bank, the tightly controlled yuan has given up half of the modest gains it made in the first seven weeks of the new policy.