Yen fall drags SE Asian currencies

Yen fall drags SE Asian currencies

SINGAPORE (Dow Jones): Dashing hopes of a reprieve for
Southeast Asian foreign exchange markets, the yen dropped afresh
in Asian trading hours on Wednesday, dragging regional currencies
down with it.

As the U.S. dollar broke up through the key 140-yen barrier
for the first time since the U.S. Federal Reserve intervened to
support the yen a week ago, the Singapore dollar, the ringgit,
the baht and the Philippine peso all fell in line with the yen.

And with the market's attention clearly focused on unfolding
events in Japan and China, there is little prospect of Asia's
regional currencies breaking their fateful link with the Japanese
currency, say analysts and traders.

"The dominant influence on regional currencies will continue
to be the direction of the yen," said Paul Alapat, regional
economist at Indosuez W.I. Carr Securities in Singapore. "In term
of domestic influences, on a two-week perspective there is really
nothing major to balance the effect of the yen's movements."

The right policies at this stage include maintaining monetary
tightness, said Rajeev Malik, regional economist at Jardine
Fleming in Singapore. No matter how strident the domestic calls
to lower interest rates and relieve the pressure on corporate
sectors, governments have no choice but to keep rates high if
capital flight and snowballing currency depreciation are to be
avoided, he says.

It's too early to remove the support of high interest rates
yet. The best we can hope for is that more orderly foreign
exchange markets in the second half of the year will gradually
open up room for a more discretionary monetary policy stance,"
agreed Alapat at Indosuez.

Even granted stability in the yen, there is little prospect of
a recovery in Southeast Asian currencies, argues Alapat, who is
targeting year-end rates of around S$1.80, 4.5 ringgit Malaysian
ringgit and 45 Thai baht to the U.S. dollar.

Others in the market agree with this bearish stance, and
continue to search for levels at which to sell regional
currencies short.

Market participants, he explained, are still trading the
Singapore and the Malaysian currencies as proxies for other less
liquid regional currencies, including the rupiah, which he
described as a "virtual currency," it is so thinly traded.

"All the optimism and pessimism towards the region is
reflected in the Singapore dollar and the ringgit, and net-net,
the market is still very pessimistic on Southeast Asia," he said.

Late in Asian trading on Wednesday the U.S. dollar was quoted
at S$1.6503, down from its early afternoon intraday high of
S$1.6630, but still up from S$1.6378 in late Asian trading the
previous day.

Against the ringgit the U.S. currency was at 3.9525 ringgit,
up from 3.9210 ringgit late in Asia on Tuesday.