SE Asian currencies rebound in yen's wake

SE Asian currencies rebound in yen's wake

SINGAPORE (Dow Jones): The rebound of Japan's yen from
Tuesday's eight-year low relieved the downward pressure on
Southeast Asian currencies, which rallied across the board during
Asian trading hours yesterday.

After opening up sharply against the U.S. dollar as early
profit-taking triggered a massive surge in the yen, Southeast
Asian currencies drifted higher still over the rest of a trading
session dominated by fears of central bank intervention to
support the Japanese currency.

"The whole market is long U.S. dollars, so people would rather
take profits than risk getting caught on the wrong side of any
intervention," explained one Singapore-based trader of regional
currencies.

Although any intervention to boost the yen would inevitably
bolster Southeast Asian currencies as well, the mood in the
market remains profoundly bearish toward regional currencies over
the longer term.

"People are still looking to buy dollars," said the head of
regional currency trading at a UK bank in Singapore. "If there is
intervention, they will shy away from the market for the time
being. But at the end of the day intervention does not strengthen
banking systems or reduce levels of non-performing loans, so the
market may just take intervention as a good opportunity to buy,"
U.S. dollars against the regional currencies.

In the short to medium term, however, few participants foresee
any decoupling of Asian markets, most predicting that regional
currencies will continue to shadow the yen.

Part of the reason that Southeast Asian currencies trail the
yen so closely can be attributed to the extreme illiquidity of
the region's markets following the currency turmoil of the last
year, say analysts.

"A lot of the speculative interest has (pulled) out of these
markets, and domestic corporations can't get the credit to
hedge," said Marshall Gittler, head of currency strategy for Asia
at Bank of America in Hong Kong.

The big speculative players, like the large macroeconomic
hedge funds, have largely pulled out of Southeast Asia's foreign
exchange markets.

At the same time, domestic corporations are finding that
currency depreciation has eroded their credit quality to the
point where they are no longer able to obtain the credit lines to
allow them to hedge their foreign currency debt exposure.

With the level of customer participation in the regional
markets so dramatically reduced, argues Gittler, it is not
surprising that Southeast Asian currencies show little direction
of their own, as interbank traders merely take their cue from the
daily swings in the yen's exchange rate.

Nevertheless, some regional currencies do show they have the
potential to break free of the yen's influence. The rupiah
especially, despite high risks of political instability and
minimal liquidity, is thought likely to outperform others over
the coming months.

Asian trading on Wednesday saw the rupiah rally strongly after
Coordinating Minister for Economy, Finance and Industry Ginandjar
Kartasasmita strongly denied reports that Indonesia had defaulted
on sovereign debt obligations.

The reports triggered a steep rupiah sell-off in European
trading hours on Tuesday, which propelled the U.S. dollar to an
overnight high of 13,550 rupiah.

The U.S. currency fell back, however, after Ginandjar denied
any default, asserting that Indonesia had suspended some
principal repayments as part of its debt rescheduling process
agreed with creditors.

Late in Asian trading yesterday, the U.S. dollar was quoted at
12,850 rupiah, off its overnight high and little different from
12,825 rupiah late Tuesday immediately before the default story
broke.

Other regional currencies finished Asian trading comfortably
higher. Against the Singapore dollar, the U.S. currency fell to
test buying support around S$1.7450, ending Asian hours at
S$1.7454, down from S$1.7595 late the previous day.

Against the Malaysian currency, the U.S. dollar dropped to
4.1950 ringgit, well below 4.2544 ringgit late on Tuesday.
And against the baht, the U.S. currency fell to end Asian trading
at 41.8350 baht, down from 42.1550 the day before.

On the Philippine Dealing System, the U.S. dollar ended
Wednesday's session at 43.15 pesos, down from 43.610 pesos at
the previous close.

In North Asia the U.S. currency dropped against both the won
and the new Taiwan dollar, in line with its fall against the yen.
At the close of domestic trading in Seoul, the U.S. dollar was at
1,331 won, down from 1,339 won the day before.

Against the Taiwanese currency, the U.S. dollar ended at
NT$34.794, compared with NT$34.810 at Tuesday's close.