Most Asian currencies down late on Monday

Most Asian currencies down late on Monday

Barry Deely, Dow Jones, Singapore

A Bank of Japan survey showing a sharp deterioration in business sentiment was the catalyst for a mild sell off in most Asian currencies Monday, with the closure of some markets and the approach of a key meeting of U.S. Federal Reserve policy makers limiting activity.

The Thai baht, Singapore dollar, Philippine peso and Indonesian rupiah were all lower in late Asian trade, while financial markets in South Korea, Taiwan and China were closed for national holidays.

The session began with a batch of bad news from the BOJ, which reported that the main diffusion index in its latest tankan survey of business sentiment registered a minus 33 reading for large manufacturers, compared with minus 16 three months ago.

It was the biggest drop over three months since March 1998, when the region was in financial crisis and Japan was verging on a meltdown of its banking system. Also, some 25% of surveyed companies sent in their responses before the Sept. 11 terrorist attacks in the U.S., the BOJ said. That probably suggests the latest tankan didn't fully reflect the sort of negative fallout from the attacks that recently prompted the International Monetary Fund to slash its forecast for world economic growth this year to 2.6%.

Against that backdrop, Asian currencies that traded Monday opened softer across the board.

In Singapore, the U.S. dollar rose to an intraday high of S$1.7680 at the start of the session, just as the U.S. currency was approaching Y119.90 in Tokyo. When the dollar's move higher against the yen stalled, the Singapore dollar retraced some of its losses.

At the end of the session, the dollar was quoted at S$1.7674, up from S$1.7662 in Asia late Friday.

Trading was somewhat muted later in the session, however, as many players were reluctant to take new positions ahead of a meeting Tuesday by the Federal Reserve's policy-setting Federal Open Market Committee, which is expected to lower its overnight Fed funds target to 2.5% from 3%.

Elsewhere, some currencies were dragged lower by concerns over the possibility of a retaliatory strike by the U.S. in Afghanistan, where the prime suspect in the terrorist attacks, Osama bin Laden, is in hiding.

The Indonesian rupiah ended sharply lower, pushing the dollar up to IDR9,880 from IDR9,710 late Friday, amid notions that a U.S. assault on the Afghanistan's Taliban might spur social instability in Indonesia, where the population is predominantly Muslim.

The move lower in the rupiah also reflected steady unwinding of positions built up over the last few months, when investors were giddy over the prospects of reform in Indonesia following the election of Megawati Sukarnoputri as the nation's new president.

Some of that enthusiasm has cooled recently as investors considered the many obstacles confronting Megawati. As if to underscore this reality, late Monday, Indonesia's Supreme Court reversed its guilty verdict against Hutomo "Tommy" Mandala Putra, the fugitive son of former dictator Suharto.

Tommy went into hiding last year after the court found him guilty of fraud in a land scam. Attempts to find and arrest Tommy have come to nothing in recent months, even though the manhunt grew intense early this year after gunmen on motorcycles shot dead one of the Supreme Court judges that had handed down the original 18-month sentence to Tommy. Police repeatedly said they suspect Tommy of involvement in the assassination.

Foreign investors may reconsider any plans to invest in Indonesia following this development.

The weaker rupiah pulled the Thai baht lower, as dealers use the more liquid baht as proxy. Late in the day, the dollar was quoted at THB44.52, up from THB44.385 late Friday. The U.S. currency rose as high as THB44.545 Monday before dollar selling by exporters combined with concerns about possible central bank intervention helped the local currency pare its losses.

Traders said the session was marked by relative calm, a welcome sign that financial markets may be starting to take concerns about global security issues in stride somewhat.

"Overall the market is calmer. This the first sign of calm since the Sept. 11 events," said Thio Chin Loo, a regional currency strategist at BNP Paribas.

"The market is beginning to realize that the fallout from the attacks is not as bad as some had expected, markets are settling down," she added.

Meantime, in Manila the dollar closed at its intraday high of 51.40 pesos, up from PHP51.320 Friday.