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.