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Taiwan Curbs Bullish Currency Bets as Yen Threatens Exports

Taiwan Said to Limit Bullish Currency Bets as Yen Hits 2008 Low
The Taiwan dollar fell 0.1 percent to NT$29.960 versus the greenback yesterday in Taipei. The currency has weakened 2.8 percent against the U.S. dollar so far this year, while the yen lost more than 15 percent. Photographer: Jerome Favre/Bloomberg

Taiwan, seeking to rein in the local dollar and boost export competitiveness, tightened limits on domestic banks’ bullish bets on the currency following the yen’s tumble to the lowest level since 2008.

The Central Bank of the Republic of China (Taiwan) reduced the daily cap on the net U.S. dollar short position that can be held by each bank to $5 million from $10 million, according to Spencer Lin, director general of foreign exchange. The rule, which aims to “stabilize” the Taiwan dollar, comes into effect today, he said in a phone interview. A short position in the greenback is a bet on depreciation against the local currency and traders were informed of the clampdown yesterday.

The island’s electronics exporters are struggling to compete against Japanese rivals including Sony Corp. after the local dollar strengthened 22 percent to a five-year high versus the yen in the past six months. Gross domestic product increased in the first quarter at less than half the pace economists estimated, putting pressure on policy makers to weaken the currency to protect overseas sales.

“It’s very apparent that the central bank wants to send the local currency lower,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “The Taiwan dollar has been depreciating against the greenback lately, but the yen depreciates even more. The purpose is to keep Taiwan’s goods competitive in overseas trade.”

Taiwan is seeking to support overseas shipments that slumped 1.9 percent in April after the yen slid 20 percent against the greenback in the past six months and touched 103.74 per dollar yesterday, its weakest level since October 2008. The island’s currency fell 2.7 percent in the same period.

Taiwan Dollar

The Taiwan dollar rose 0.3 percent to NT$29.952 versus the greenback at the lunch break in Taipei. It erased a 0.5 percent advance in the final two minutes of trading yesterday on suspected intervention. The central bank has sold the local currency toward the close on most days for more than a year, according to traders who asked not to be identified.

One-month non-deliverable forwards for the Taiwan dollar fell 0.3 percent to NT$29.995 versus the greenback, the biggest loss in a week, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 18 basis points, or 0.18 percentage point, to 4.71 percent.

Yen Weakness

Taiwan’s benchmark Taiex index fell 1.7 percent to 8,257.73, heading for the biggest drop since April 8 and the worst performance among emerging markets in Asia. Taiwan Semiconductor Manufacturing Co., which exports chips to clients including Qualcomm Inc., slid 3.1 percent. Hon Hai Precision Industry Co., a supplier of Apple Inc., lost 1.5 percent.

Japan’s currency declined versus 13 of its 16 major peers yesterday after Bank of Japan policy makers affirmed a plan to double the monetary base over two years. South Korean Finance Minister Hyun Oh Seok said today the yen’s decline is causing difficulties for the nation’s exporters. The won has strengthened 21 percent versus the yen in the past six months.

Taiwan’s GDP rose 1.54 percent in the three months ended March from a year earlier, after increasing 3.72 percent in the fourth quarter, official data show. The gain was less than all 17 estimates in a Bloomberg survey of economists, who had a median projection of 3.1 percent. Last year’s 1.3 percent annual growth rate was the slowest since a 1.9 percent contraction in 2009.

Overseas demand for the island’s products remains weak. Export orders, indicative of shipments in the next one to three months, slumped 1.1 percent in April from a year earlier, declining for a third straight month. HTC Corp., Taiwan’s largest maker of smartphones, posted its lowest quarterly profit on record in April.

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