RI, Thailand to be worst hit by yen rise
RI, Thailand to be worst hit by yen rise
SINGAPORE (AFP): Indonesia and Thailand are expected to be worst hit by the steep appreciation of the Japanese yen against the U.S. dollar, according to a study of nine Asian economies released here yesterday.
The study was conducted by American investment house Salomon Brothers.
It warned that a further deterioration of trade or current account balances of the two countries caused by the yen's appreciation "could have wider implications in terms of the potential knock-on effects on short term capital flows and interest rates."
The yen has appreciated by 14.5 percent against the Indonesian rupiah and 12 percent against the Thai baht between January and March, the period covered by the study.
The Japanese currency has moved fairly uniformly against currencies closely linked to the U.S. dollar, such as the Thai and Indonesian currencies, as well as the Hong Kong dollar and China's yuan.
The yen's movement against the Malaysian ringgit was also seen in a range similar to the linked currencies.
"The appreciation of the yen could lead to some deterioration of the bilateral and, hence, overall trade balances in the Asian countries surveyed, with Indonesia and Thailand leading the group as a result of their relatively high overall trade dependence on Japan," Salomon Brothers said.
Indonesia
Indonesia, primarily because of its oil exports, was the only one among the nine Asian economies surveyed by Salomon Brothers which had an overall bilateral surplus with Japan.
"Hence, the appreciation of the yen may well decrease the portion of the surplus which does not reflect U.S. dollar-priced goods, such as oil," it said.
Indonesia, however, was a special case, because the servicing of its large yen-denominated foreign debt could impact its current account, Salomon Brothers said.
Apart from Indonesia and Thailand, the other countries covered under the survey were the Philippines, South Korea, China, Malaysia, Taiwan, Singapore and Hong Kong.
The survey showed that the yen appreciated most strongly against the Philippine peso -- by 20.8 percent -- but the Philippines was not the hardest hit because Japanese imported goods represented a smaller proportion of total Manila imports than for other Asian economies.
Salomon Brothers also said the stronger yen may lead to "windows of opportunity" for South Korea and Taiwan to compete effectively against Japanese exports in regional and international markets.
The yen had appreciated 10.3 percent against the South Korean won and 11.5 percent against the Taiwan dollar.
Salomon Brothers said institutional investors in Japan and foreign issuers of Euro-yen instruments might be unwilling to take further exchange rate risks following the Japanese currency's steep appreciation.
"This could mean that as these sources of capital outflows are reduced, the exchange rate will have to bear more of the burden of returning the currency market to equilibrium," it said.