No plans yet to cut yen forex reserves, says BI

The Jakarta Post, Jakarta

Bank Indonesia said it had no plans yet to cut its yen denominated foreign exchange reserves in reaction to Japan's policy to weaken the yen in favor of boosting its export sales.

Bank Indonesia Governor Sjahril Sabirin said the central bank was monitoring daily the need to decrease or increase its yen reserves.

When asked last week whether Bank Indonesia would cut its yen reserves, he said, "not just yet".

Japan has been devaluating the yen in an effort to boost export sales, and pull its economy out of a recession.

This month alone the currency lost 7 percent of its value as it sank to around 131 against the U.S. dollar, the lowest level in over three years.

A lower yen would reduce the overall value of Bank Indonesia's foreign exchange reserves, which amounts to about US$28 billion.

Bank Indonesia officials refused to say how much yen the country's foreign reserves was holding.

In the late eighties, Bank Indonesia is said to have suffered heavy losses when it was too late in converting its devaluated yen reserves into dollars. At that time, the yen's fall had already hit its bottom.

While the current steep fall of the yen raises concerns on the dollar value of the country's foreign reserves, a rise in the yen could be even more worrisome.

A stronger yen would add to the country's debt burden as a portion of yen-denominated debts are paid back in dollars.

In the mid-nineties, a sharp surge in the yen against the dollar sent Bank Indonesia scrambling to raise its yen base reserves.

Former Bank Indonesia's governor Soedradjad Djiwandono has said that following the surge in the yen, the central bank raised the yen portion of the country's foreign reserves to 36 percent in 1996, from 27 percent in 1993.

Meanwhile, Sjahril added the weakening of the rupiah last week was more driven by local trading factors than the yen's fall.

Currency analyst Farial Anwar concurred saying the weakening of the yen had had only a minor impact on the rupiah's movements.

While other East Asian currencies tracked the yen's fall, he said, the rupiah had moved within an isolated trading range.

"The rupiah is moving on its own without influence from its regional peers," Farial explained.

Dealers have said that local companies were seen buying the dollar so that they can pay their foreign debts maturing next year.

He said the central bank should also maintain the current yen composition in its foreign exchange reserves.

According to him, not only is the current yen composition small, the Japanese currency may have also stop depreciating.