U.S.-Japan trade row may lower currencies
U.S.-Japan trade row may lower currencies
SINGAPORE (AFP): The latest U.S.-Japan trade row could temporarily deflate the currencies of booming Southeast Asian economies against the U.S. dollar, but the greenback's medium- term prospects are still bearish, analysts said yesterday.
They cautioned that the yen would continue climbing against the greenback if Washington proceeded with trade sanctions against Tokyo -- a development that could stifle Japan's economic recovery and its investments in the region.
"While the trade issue has been quite discounted by the market, regional currencies will move down against the dollar, currently quite under-weighted, in the short-term," said Lionel Heng, a Singapore-based currency strategist with the British firm Institute for Development of Economic Analysis (IDEA).
Heng said the market however still favored buying the yen against the dollar in the medium-term, which he added could give further room for regional currencies to continue rising against the greenback.
"Regional economies will want their currencies to maintain the uptrend against the U.S. dollar in the medium-term as an anti- inflationary measure, especially when there is a possibility of a U.S. interest rate hike in September," Heng said.
The Singapore dollar has appreciated by about five percent against the greenback in the first quarter of 1995, on top of a 10-percent rise in 1994, and the Thai baht and the Malaysian ringgit have firmed about three percent, foreign exchange dealers here said.
Rupiah
The Indonesian rupiah however depreciated two-to-three per cent against the U.S. dollar between January and March, they said.
The U.S. dollar was quoted just below 84 yen in early trading here, about three weeks after hitting a global record low of 79.75 yen in Tokyo.
The greenback rose to 24.59 Thai baht from 24.53 on Tuesday, 2.4680 Malaysian ringgit from 2.4650, 1.3927 Singapore dollar from 1.3915 and was unchanged at 2,226 Indonesian rupiah. The foreign exchange market was closed for a holiday Wednesday.
Analysts said the yen's appreciation against the U.S. dollar had somewhat slowed in recent days by a market perception that the U.S. threat of sanctions to open Japan's automobile market might lead to a resumption of trade talks between the two countries.
Japan's huge trade surplus with the U.S. was cited as the main reason for the dollar's slump against the yen this year.
Phoon Kok Fui, the Singapore-based regional head of Japan's Yamaichi Merchant Bank equities research department, said increased Japanese investment flow into Southeast Asia "may not be forthcoming" if Washington launched sanctions against Tokyo.
"Even if Japan wants to further relocate its industries in the region due to the strong yen, they will be hampered by a worsening of economic problems caused by the sanctions," Phoon said.
He added: "There is not much faith in the dollar for the long- term. Even if it continues its fall below the 80 yen level, it will have a dramatic effect on the Japanese economy."
Singapore's Banque Nationale de Paris chief dealer Samuel Leow said the current U.S.-Japan trade dispute could erode the U.S. dollar's current strength to around the 80 yen level.
"The dispute is definitely a depressing thing and could put a top on the dollar-yen," Leow said.