Asian currencies under pressure from falling yen

Asian currencies under pressure from falling yen

SINGAPORE (AFP): Asian currencies are expected to slide this
week against the U.S dollar in line with the yen, with bearish
domestic factors pushing the decline even further, analysts said.

Foreign exchange markets across the region will also be
closely watching the situation in Brazil, where the central bank
intervened in the market for the fourth consecutive day on Friday
to protect the embattled currency, the real.

The yen fell at the end of last week even after US Deputy
Treasury Secretary Lawrence Summers warned that Japan could not
use foreign exchange policy -- a weaker Japanese currency -- to
cure its economy.

The yen plunged to a low of 121.05 against the greenback in
Asian trading Friday before short covering pulled it higher to
119.10 in New York.

"The assumption is that the dollar is going to remain on a
bullish track against the yen because it is apparent that
Japanese officials want the yen to be weak ahead of Japan's
fiscal year ending March 31," said John Lilley, director of
analysis at Standard and Poor's MMS in Singapore.

Speculation remains rife that Tokyo preferred a weaker yen to
boost exports and this could put pressure on Asian exports
competing with Japanese products, and eventually push China into
devaluing its yuan, analysts say.

"That (a weaker yen) in turn will weigh on other Asian
currencies," Lilley said. Some are looking at the yen dipping to
as low as 125 by March end.

Most Asian currencies ended the week lower against the US
dollar compared to the previous week's close.

The Singapore dollar ended Asian trading Friday at 1.7255
against the greenback, the Thai baht at 37.40, the Indonesian
rupiah at 8,820, the South Korean won at 1,223, the Taiwan dollar
at 33.055 and the Philippine peso at 39.12.

Analysts and officials warn that a declining yen taking a toll
on other Asian units could hinder recovery of turmoil-wracked
regional economies.

"While our domestic credit crunch has eased, we remain very
concerned in the weakening of the Japanese yen -- that it could
aggravate the credit crunch in the region," Kim Kihwan, South
Korean ambassador at large for economic affairs, told a forum in
Manila last week.

Further weakness in regional units could force up interest
rates, sparking a renewed credit crunch.

Analysts say domestic economic problems could add pressure to
the already-vulnerable regional currencies.

In Indonesia, Lilley said, a delay in the announcement on the
number of banks to be shut down had created "market pessimism,"
adding that the rupiah could test the 9,000 level against the
dollar.

Jakarta on Friday delayed the closure of up to 40 banks for
two weeks, saying it needed more time to evaluate the situation.

"Such a delay may hinder any hopes of viewing Indonesia in any
favorable way," said the ANZ Investment Bank in a bulletin to
clients.

With the Indonesian banking sector in a crippled state, the
crucial link to boost economic activity was lost, it said.

"Further, the frequent wavering on the part of officials in
Indonesia does not sit well with investors who are already
anxious about the country's social and political risks," ANZ Bank
said.

The Singapore dollar was also expected to remain weak after
declining by more than one percent to the greenback last week.

Some believe recession-hit Singapore did not mind a weaker
exchange rate to further compliment the island economy's drive to
lower costs.

ANZ Bank said near-term fluctuations of the Singapore dollar
would mainly be led by greenback-yen movements.

The baht also remained vulnerable as Thailand succumbed to its
first balance of payments deficit in January after four straight
months of surplus.

It "was a disappointment and could be a warning bell for the
authorities," ANZ Bank said.