Asian currencies decline on sale concerns

Asian currencies decline on sale concerns

Christina Soon and Yumi Kuramitsu, Bloomberg/Singapore/Hong Kong

Asian currencies weakened on speculation some central banks will sell them to preserve export competitiveness with Japanese rivals after the yen dropped to its lowest against the dollar since August 2003.

Exports make up about half or more of most Asian economies, meaning companies such as South Korea's LG Electronics Inc. and Taiwan Semiconductor Manufacturing Co. may lose sales to Japanese exporters as a weakening yen makes their products cheaper to overseas buyers.

"Authorities such as those in Korea and Taiwan prefer their currency to weaken when the yen is lower, raising concern they will sell," said Xinyi Lu, chief strategist of the international treasury division in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-biggest lender.

South Korea's won fell 0.2 percent to 1,049.50 against the dollar as of 3 p.m. Seoul time, according to Seoul Money Brokerage Services Ltd. The Taiwan dollar dropped 0.1 percent to NT$33.69, according to Taipei Forex Inc. The yen reached 118.38, the weakest since Aug. 20, 2003.

The won may weaken to about 1,070 and the Taiwan dollar to around NT$34.20 in a month, Lu said.

Elsewhere in Asia, Singapore's currency weakened 0.1 percent to S$1.7002 and the Thai baht was at 41.03. The Philippine peso fell 0.1 percent to 54.68, according to the Bankers Association of the Philippines. Financial markets in Indonesia were closed for a public holiday and will remain shut on Tuesday.

Weaker currencies make it easier for Asian companies to cut prices overseas and attract buyers away from Japanese rivals. Exports make up about 40 percent of South Korea's economy and almost half of Taiwan's gross domestic product. Non-oil domestic exports in Singapore account for about 70 percent of the economy.

The currencies pared losses on speculation China will allow the yuan to strengthen more rapidly before a visit this month by U.S. President George W. Bush.

The U.S. wants to see a further China revaluation before Bush arrives, the Financial Times reported Treasury Secretary John Snow as saying in a report published Oct. 28. A stronger yuan reduces the need for Asian central banks to try to weaken their currencies to help keep exports competitive with rival products from China.

Snow told China's President Hu Jintao and Premier Wen Jiabao that the U.S. wants to see a yuan revaluation before Bush arrives in Beijing Nov. 19, the FT reported, citing people familiar with the private talks during Snow's week-long tour of the country.

"The pressure is growing in the U.S. for something tangible out of China," said Sean Callow, a currency strategist at Westpac Banking Corp. in Singapore. "China has the flexibility to allow a bit more appreciation of the yuan. That should have an effect on Asian currencies," helping them strengthen.

The economy is flexible enough to withstand a more freely traded currency, People's Bank of China Governor Zhou Xiaochuan said on Nov. 4.

China revalued the yuan by 2.1 percent to 8.11 against the dollar on July 21 and started managing its value against a basket of currencies including the euro and yen. The currency is allowed to move by as much as 0.3 percent against the dollar either side of a daily fixing rate set by the central bank.

A faster appreciation would make it cheaper for Chinese consumers to buy imports from the rest of Asia, driving demand for the region's currencies.

The yuan may rise to 8.07 against the dollar by the end of the first quarter, Westpac's Callow said. The Singapore dollar will probably strengthen to S$1.66 in the same period, the won may climb to 1,027 and the Taiwan dollar to NT$33.06, he said.

Asian currencies also fell on Monday on concern interest rates and bond yields aren't keeping up with the U.S.

The Federal Reserve on Nov. 1 raised its key rate a quarter- point for a 12th straight time to 4 percent and said it will keep lifting rates at a "measured" pace.

In Asia, South Korea's central bank on Oct. 11 increased its benchmark rate for the first time in more than three years to 3.5 percent, while Taiwan's central bank on Sept. 15 raised its rate for a fifth consecutive quarter to 2.125 percent. The Bank of Thailand on Oct. 19 raised the 14-day bond repurchase rate by half a percentage point to 3.75 percent.

"Regional currencies in general are also weaker on speculation funds are flowing into higher-yielding U.S. assets," Mizuho's Lu said.

Overseas investors Oct. 4 through Nov. 4 sold a net $2.1 billion of Korean shares, and a net $512 million of Thai equities, according to stock exchange figures.