SE Asian central banks boost yen reserves

SE Asian central banks boost yen reserves

TOKYO (Reuter): Some Asian central banks are quietly but steadily dumping U.S. dollars and German marks for the yen in order to boost the Japanese currency portion of their foreign exchange reserves, senior Japanese bankers say.

"Southeast Asia's public investors were aggressive in yen purchases when it weakened to 122-124 to the dollar. They are also placing persistent bids on the yen in crosses, particularly for the mark," said Shinichiro Maruyama, chief of spot trading at the Industrial Bank of Japan.

He added that these moves reflected a portfolio reshuffle by the central banks and an enhancement of their yen weighting.

"The (recent) weak recovery, if any at all, in the mark against the yen proves that they have been quantitative, outright yen buyers behind the scenes," said Takashi Okura, chief trader at the First National Bank of Chicago's Tokyo branch.

Okura noted that Southeast Asian central banks, along with East European central banks which need yen to pay back their yen loans from Japan, were driving the well-bid Japanese unit.

The move to procure yen holdings is in response to the recent Group of Seven (G-7) statement suggesting its reluctance to see a further dollar rise, and also a perception that a subtle shift has occurred in U.S. monetary authorities' public policy toward the dollar, bankers said.

In February, the Group of Seven industrialized countries of Japan, the United States, Germany, Britain, France, Italy and Canada said in a statement that major misalignments in exchange markets noted in the April 1995 communique have been corrected.

The dollar hit a record low of 79.75 yen in April 1995.

U.S. Treasury Secretary Robert Rubin reiterated this week that the dollar had been strong for "quite some time".

"Not just in the eyes of the G-7 but also from the perspective of Asian central banks, a not-so-strong-a-dollar would be beneficial to the region," Taisuke Tanaka, a market strategist at Credit Suisse First Boston's Tokyo branch, said.

Due to the dollar's strength particularly against the yen, Asian economic growth has been slowing since early 1996.

This is because East and Southeast Asian currencies are loosely linked to the dollar, and the higher dollar or stronger local currencies cuts the competitiveness of their products against Japanese goods.

Japanese bankers said, however, that they doubt that those yen purchases are backed by any policy coordination among Asian central banks which together possess more than 40 percent of the global foreign exchange reserves.

They said that Southeast Asian central banks continue to steadily unload the dollar for the yen, although their activities are more noticeable in cross-yen trading.

In the recent weeks, persistent yen buying interest by those central banks has often overwhelmed speculative yen sales for the mark by U.S. hedge funds, traders said.

In Tokyo on Monday, U.S. hedge funds tried to drive up the mark to well over 71.50 yen, only to be thwarted by strong bids on the yen by a Southeast Asian central bank, traders said.

The following day, those U.S. hedge funds turned mark sellers, they said.

The mark was quoted at around 70.55 yen in late Tokyo morning trade on Friday.