April 24 (Bloomberg) -- Asian currencies including the yen and South Korean won may extend their rally through the year after the Group of Seven industrialized nations called for faster appreciations in the region, particularly in China.

Finance ministers and central bankers from the G-7 said in Washington it is ``critical'' Asian nations rely less on exports and let their currencies rise. The call adds to U.S. criticism that China depresses its exchange-rate to support exporters. A stronger yuan may lead regional currencies higher as it makes Chinese goods less competitive relative to rival Asian products.

``The honeymoon period is now really over,'' Jan Lambregts, head of research at Rabobank Groep, said in Singapore. ``The world is really starting to pressure China. There will be appreciation pressure on Asian currencies.''

The South Korean won, Thailand's baht and the Indonesian rupiah account for three of the world's top five performers this year among the 62 currencies that Bloomberg tracks. The rupiah has gained 11.4 percent against the dollar, the baht 9.1 percent and the won 7.5 percent. The yen is up 2.3 percent.

The Bank of Korea is among Asian central banks that sell their currencies to curb gains. ``We won't waste ammunition but are looking for the right timing'' to sell won, Rhee Gwang Ju, head of the BOK's international bureau, said in Seoul April 11.

`More Appreciation'

``In emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations, as is strengthening domestic demand, easing reliance on export- led growth strategies, and actions to strengthen financial sectors,'' the G-7 finance ministers and central bank governors said in a statement after meeting in Washington on April 21.

The language is a departure from the words the G-7 usually uses to address China's exchange rate. Past communiqués have referred only to the need for more flexibility without saying whether the yuan should strengthen or weaken.

China's central bank Governor Zhou Xiaochuan told reporters in Washington on April 22 when asked if the yuan will be allowed to strengthen more quickly that change ``probably can be a little bit faster.''

The G-7 statement came a day after Chinese President Hu Jintao declined to respond to pressure from U.S. counterpart George W. Bush to loosen yuan controls. Hu said after they met in Washington that China ``will continue to make adjustments'' to the exchange-rate. Bush said he wanted ``more appreciation.''

`Losing Patience'

The yuan is up 1.2 percent since China revalued it by 2.1 percent on July 21, halting a decade-old peg to the dollar. It may rise 2.5 percent in 2006 from 8.0164 today, Lambregts said.

Singapore's dollar and the Japanese yen may benefit most from further yuan gains because they are among the most widely traded of Asian currencies, said Jimmy Koh, head of Treasury research at United Overseas Bank in Singapore.

``You can interpret that G-7 is losing patience; it'll put a lot more pressure on China,'' Koh said. ``The dollar will probably be lower against regional currencies.''

The yen rose to a three-month high against the dollar today, adding to its biggest rally in five weeks on the day of the G-7 meeting. Appreciation in Asian nations' currencies would make their goods less competitive with Japanese exports, which are driving growth in the world's second-biggest economy.

Regional currency gains will be limited as authorities in China and the rest of Asia may seek to stem rapid fluctuations.

`Unlikely to Bow'

``China is unlikely to bow to pressure,'' Andy Xie, chief Asia economist at Morgan Stanley, said in Hong Kong. It ``will continue its policy to allow the yuan to appreciate gradually.''

``Chinese economic reform follows the philosophy of being gradualist,'' said the central bank's Zhou, who also hinted he faces resistance among some Chinese officials and companies.

The country will balance its needs along with supply and demand as the government changes its exchange-rate mechanism, China's Vice Foreign Minister Yang Jiechi said on April 14.

Malaysia's Deputy Finance Minister Awang Adek Hussin said a day after the G-7 statement that stronger Asian currencies alone can't solve the problem of financial and trade imbalances.

``Any drastic appreciation of Asian currencies can lead to severe economic dislocation and trigger global economic and financial instabilities,'' he said in a statement released at a meeting of the International Monetary Fund in Washington.

China may widen the daily band in which it allows the yuan to fluctuate to encourage flexibility, Arjuna Mahendran, chief economist and strategist at Credit Suisse, said in Singapore.

The bank lets the yuan move as much as 0.3 percent up or down from a mid-rate. The biggest movement so far is half that.

``China has to move to a more flexible foreign currency trading system, no question about that,'' Mahendran said. ``You might see two or three moves to widen the band, say to 0.5 percent.'' The yuan may reach 7.9 by end-2006, he said.

To contact the reporter on this story: Christina Soon in Beijing at csksoon@bloomberg.net

Last Updated: April 24, 2006 04:30 EDT