Southeast Asian currencies lifted by yen

Southeast Asian currencies lifted by yen

SINGAPORE (Dow Jones): Most Southeast Asian currencies lifted slightly during Asian trading on Friday as the Japanese yen nosed higher against the U.S. dollar.

The rupiah, however, ended lower, after Indonesia's supreme military chief advised the population to stay at home, triggering a flurry of local currency sales.

But the rupiah looks set to remain the exception among regional currencies, according to analysts and traders.

Whereas the Indonesian currency is swayed primarily by escalating domestic political tensions, over the coming week markets elsewhere in Asia will move in response to changes in the U.S. dollar/yen exchange rate and developments on the global political stage, they say.

As trading resumes on Monday market participants' attention will be closely focused on Kuala Lumpur, where heads of government from Asia and the Americas, including President Clinton are gathering to attend the Asia Pacific Economic Cooperation forum.

Although the assembled decision-makers are widely expected to issue a statement addressing Asia's crippling foreign debt levels, few analysts or traders believe any announcement will have a significant impact on regional exchange rates.

"The most we can expect is an agreement in principal to work towards a debt deal," said Ron Leven, market strategist at J.P. Morgan in Singapore.

But hopes that the meeting will yield a comprehensive initiative sponsored by the U.S. and funded by Japan to restructure Asia's foreign currency debt overhang are sadly misplaced, he warned.

Although debt restructuring will certainly be a hot discussion topic at the meeting, the problems are too complex to be resolved by a stroke of President Clinton's pen, agree most observers.

With little prospect of a debt deal, and Asian economic reform proceeding at "a snail's pace", the pivotal factor driving swings in Asian regional currencies will remain the relative strength or weakness of the Japanese yen against the U.S. dollar, argued Wu.

And which direction the yen and the regional currencies take will depend more than anything on whether the U.S. Federal Open Market Committee decides to trim another 25 basis points off U.S. interest rates when it meets on Tuesday, said Leven at J.P. Morgan.

A cut, which if it materializes would be the third in as many months, would reinforce the recent rally in Asian stock markets, further lifting the regional currencies, he argued.

Any gains are likely to be slight, with most traders and analysts predicting a period of relative stability for the region's currencies.

Few market participants were bold enough to make any concrete predictions for the rupiah's exchange rate, however, as confrontations between security forces and student protesters again flared into violence late on Friday.

Within minutes the U.S. dollar broke up through the Rp 8,000 mark, before state banks in Jakarta stepped into the breach, selling the U.S. currency and arresting the rupiah's fall.

Although some traders suspected central bank intervention, the sales were more likely to have been executed on behalf of commercial customers rather than at the behest of Bank Indonesia, according to one Singapore-based trader at a major U.S. bank.

With many banks in Indonesia closing up early, rupiah liquidity evaporated into the Asian afternoon. Although a handful of Singapore-based dealers were still prepared to quote prices, trading was sporadic and extremely light, they said.

Late in Asian hours, the U.S. dollar was being quoted at Rp 7,800, up from 7,779 at the end of the previous day's trading.

Other Asian regional currencies are likely to remain range- bound over the coming week, unless there is an upsurge in U.S. dollar/yen exchange rate volatility.

Against the Singapore dollar, the U.S. currency is seen trading between S$1.6350 and S$1.6800. Although many dealers argue that the local currency should be weaker, the U.S. dollar is being capped by selling interest from local corporations, they add.

Late in Asia on Friday, the U.S. currency was at S$1,6500, down from S$1.6592 late the day before.

Against the baht, the U.S. dollar was at 36.87 baht, slightly higher than 36.85 the day before, as traders eyed a range of 36.60 to 37.50.

On the Philippine Dealing System, the U.S. dollar closed against the peso at 40.47, down from 40.80 the previous day.

Against the Taiwan currency, the U.S. dollar ended at NT$32.671, compared with NT$32.681 at Wednesday's close. Against the South Korean won, the U.S. dollar closed flat at 1,316.50 won.