The Asia Region's Best Exchange-Rate Rally

Posted on April 27, 2013 at 7:04 PM

merchant_asian_currenciesAmidst a flourishing economic climate in Asia, eyes are turning to the fluctuating currency rates more than ever.  The week of April 20th was the best week for Asian currencies in the past seven months.  Additionally, Asian shares rose the most in almost two weeks amid growth in U.S. home sales, earnings that exceeded forecasters’ expectations and speculation the European Central Bank will cut interest rates.

Despite the yen’s recent dwindle in Japan, Bloomberg-JPMorgan Asia Dollar Index, which tracks the ten most active currencies in the region, rose 0.5% this week. Investment incentives are skyrocketing, especially in Southeast Asian countries. Thailand’s “currency has started to move beyond its fundamentals” according to Governor Prasarn Trairatvorakul. In fact, the baht, one of the eleven most traded Asian currencies, has strengthened the most in the past year—6.8% against the dollar.

Similarly, South Korea’s won strengthened 1.2% per-dollar and the yuan 0.24%. On the other side of things, Japan is struggling to reverberate its yen that reached multiyear lows because of the monetary stimulus program instated by Prime Minister Shinzo Abe. Earlier this April, Bank of Japan unleashed the world’s most intense burst of monetary stimulus injecting $1.4 trillion into the economy in less than two years.

According to Bloomberg, a drop in the yen increases the chance that South Korea will seek a weaker currency to help exporters such as Samsung Electronic competitors overseas.  Additionally, Southeast Asian countries such as Thailand and even others with smaller economies are benefitting from the stagnant yen.  Thailand’s baht reached a 16-year high after global funds boosted holdings of local bonds due to signs policy makers will not curb capital inflow. With Japan as a major export destination, these countries are all vital links in the supply chain and profit from Japan’s weak currency. Although Japanese investors continue to sell record numbers of foreign bonds, there is a growing concern that money will begin to flow out of Japan.

Simultaneously, there is a growing stimulus for investment in other countries such as South Korea, one of Japan’s primary competitors in the electronics and automobile industries. According to Bloomberg, “rallies in the stock markets together with speculation the ECB may cut interest rates are boosting hopes for more liquidity available to emerging markets,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.  He also noted that investors will most likely continue to watch the yen closely due to concerns that the authorities may intervene if the yen breaches 100 per dollar.  This part of the world is increasingly becoming a world hub for investment as Southeast Asian economies continue to grow and their currencies continue to hit all-time records.

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