SE Asian currencies trail the yen's rise

SE Asian currencies trail the yen's rise

SINGAPORE (Dow Jones): Southeast Asian currencies faithfully
trailed the yen higher as the Japanese currency rose against the
U.S. dollar during Asian trading hours yesterday.

The yen dropped past 146 to the dollar before rebounding later
to 144/145 in late trade.

With commercial customers and investors largely absent from
the foreign exchange market, trading was confined almost entirely
to the interbank market and dominated by short-term swings in
sentiment towards the yen, according to dealers.

As Japanese threats of intervention caused interbank traders
to bail out of their long dollar positions against the yen, they
also pared back their outstanding positions against Southeast
Asian currencies, boosting the Singapore dollar, the ringgit and
the baht.

The rising yen also helped push the won higher, while
diminishing demand for U.S. dollars supported the rupiah. The new
Taiwan dollar slipped, however, despite sales of U.S. dollars by
the central bank, while the Philippine peso also eased to close
lower.

The yen is set to remain the principal driving force for
regional markets in the near future, say traders. But even
without yesterday's rally in the Japanese currency there would
have been little incentive to sell Southeast Asian currencies,
despite the underlying weakness in the region's economies.

Even in Malaysia, where the market widely expects further
easing of monetary policy to follow last week's 50-basis-point
interest rate cut, the ringgit is showing unforeseen resilience.

Late in Asian trading, the U.S. dollar was trading at 4.1510
ringgit, down from 4.1675 ringgit a day beforehand.

"Malaysia is testing the water for more interest rate cuts.
I'm surprised that the ringgit has not weakened further," said
Neil Saker, regional economist at SG Securities in Singapore.

"The short-term speculative interest to short the ringgit
simply isn't there," explained a regional currency trader at a
German bank in Singapore. "It is only the interbank players
contributing to the market's liquidity, and they are just
following the yen."

Even if the Malaysian authorities do pursue further monetary
easing, it does not necessarily follow that the ringgit will
drop, says Fong Cheng Hong, regional economist at Nomura
Singapore.

"Any foreign capital that was going to leave Malaysia left
long ago, meanwhile the government is doing a good job of
mobilizing nationalist sentiments to contain leakage of domestic
capital," she said.

In fact, at this stage of the economic crisis easing monetary
policy may even boost the ringgit, argues Fong, as foreign direct
investment flows into Malaysia to capitalize on the economic
growth opportunities created by lower interest rates.

"I praise Malaysia for taking these steps," she said. "Of
course uncontrollably printing money would be disastrous for the
ringgit, but at this stage in the economic downturn there is room
for prudent easing."

The Singapore dollar also benefited from the yen's strength,
with the U.S. dollar dropping to S$1.7251 late in Asia, down from
S$1.7333 late the previous day.

"Everything is trading on the dollar/yen," said one dealer at
a U.S. bank in Singapore, as the baht also rose, boosted by
genuine investment inflows into Thailand as well as the yen
rally, according to traders.

Late in the Asian day, the U.S. dollar was quoted at 40.7250
baht, down from 40.8850 late on Monday.

"For now we are seeing no demand to buy U.S. dollars. The
pledges of extra aid money are helping the dollar to come off,"
said a regional currency trader at a Dutch bank in Singapore.

Elsewhere in Asia, the won strengthened a touch, helped by the
yen rebound, but the new Taiwan dollar and the Philippine peso
both fell back.

At the close of domestic trading in Seoul, the U.S. dollar was
quoted at 1,240.50 won, down from 1,242.50 won at Monday's close.

Against the New Taiwan dollar, the U.S. currency rose on
strong local demand despite sales of around $50 million by the
central bank. At the close of domestic trading, the U.S. dollar
was at NT$34.427, up from NT$34.419 at the previous close.

On the Philippine Dealing System, the U.S. dollar finished at
42.155 pesos, up from 42.140 pesos at the end of Monday's
session.