SE Asian currencies share yen's debacle

SE Asian currencies share yen's debacle

SINGAPORE (Dow Jones): Sky-high offshore interest rates failed to protect Asia's regional currencies from yesterday's plunge in the yen and the resulting collapse of regional stock markets.

Despite the noose-tight liquidity, which drove the interest rates implied by offshore swap rates still higher yesterday, currencies throughout Southeast Asia ended the day substantially lower against the U.S. dollar.

"As long as the yen keeps falling, other Asian currencies will go down with it," says Koh Foong Yin, head of research at Overseas Union Bank in Singapore. "Asia is in a no-win situation where the problems are only getting worse. At this point I don't think there is any action that can be taken without the stabilization of the yen."

During Asian trading hours yesterday the U.S. dollar touched 146.55 yen, its highest level since August 1990. With little sign of any coordinated international policy response, most market participants forecast that the U.S. currency would continue to appreciate to levels around 150 yen or even 160 yen, with a corresponding impact on regional currency exchange rates.

Adding to negative sentiment Monday was a Hong Kong newspaper report that Chinese Vice Premier Li Lanquin had indicated that China may reverse its commitment not to devalue the yuan should the yen drop further. A yuan devaluation, argue many traders and analysts, would spark a renewed round of competitive devaluations in Asia, plunging regional markets in to ever deeper gloom.

However, a China central bank official later repeated the bank's pledge that it won't devalue the yuan.

The Singapore dollar, the most liquid of the regional currencies, attracted the highest level of speculative selling, said traders, despite a liquidity squeeze which saw the overnight interbank offered rate bumped up to 9 percent from 7 percent late Friday.

Of other Southeast Asian currencies, both the Indonesian rupiah and the Philippine peso came under heavy selling pressure yesterday.

Late in Asia the U.S. dollar was quoted at Rp 14,700, up from Rp 13,800 Friday. Meanwhile at the close of trading on the Philippine Dealing System, the U.S. currency was at 42.450 pesos, up sharply from 40.240 pesos at Thursday's close. Philippine markets were closed Friday for a public holiday.

In north Asia the won ended steeply lower as the South Korean currency continued to track the fall in the yen. At the end of trading in the domestic market the U.S. dollar was quoted at 1,433 won, up from 1,398.50 won at Friday's close.

The only currency successfully to resist the region-wide slide was the new Taiwan dollar, which ended the day higher following further vigorous intervention by the Central Bank of China, Taiwan's central bank, to follow repeated central bank actions last week.

Dealers in Taipei estimated that the authorities sold as much as $100 million to suppress the U.S. currency below the psychologically significant NT$35.00 level.

At the close of domestic trading, the U.S. dollar was quoted at NT$34.872, down from NT$34.892 at the end of Friday's session.