Yen Drop Rattles Korea Exporters as Taiwan Steps Up Intervention

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The yen’s slide to a 12-year low is drawing the ire of authorities in South Korea and Taiwan as the two economies seek to reverse a drop in exports.

The Japanese currency fell to 124.46 a dollar on Thursday, the weakest level since late 2002, as an improving U.S. economy boosted bets the Federal Reserve will raise interest rates this year. The yen has tumbled 18 percent against the greenback in the past 12 months as Japan pressed ahead with record monetary stimulus, while the won lost 7.9 percent and Taiwan’s dollar fell 2.1 percent.

Exporters from the three economies compete globally to sell everything from cars to electronics and the yen’s slide risks exacerbating a currency war between them. The Korea International Trade Association called for policy makers in Seoul to steady the exchange rate on Thursday as Taiwan’s central bank stepped up intervention to weaken its currency. South Korea is prepared to intervene in the foreign-exchange market if yen weakness persists, a finance ministry official said Friday.

The Taiwan dollar and the won “are lagging the yen’s move, and over the longer term they will catch up,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “Northeast Asian exports have been weak, so that should argue that there’s probably a bit more room for downside for these two currencies.”

While exports from South Korea and Taiwan fell in at least three of the first four months of this year, Japan’s increased by 9 percent on average. Apart from having to contend with the weakening yen, Taiwanese and Korean exporters are also facing slowing demand from China, their biggest market, and a drop in the euro that’s improving the competitiveness of European goods.

Taiwan Intervention

Taiwan’s dollar has strengthened 19 percent against the yen in the past 12 months, while the won climbed 12 percent. The euro fell 2.2 percent against the yen and tumbled 20 percent against the dollar. China’s economy grew 7 percent in the first quarter, the slowest expansion in six years.

While Taiwan’s central bank regularly weakens its currency in the run-up to the close, it took the rare step of doing so before the midday trading break on Thursday, when the local dollar fell 0.3 percent during the final minute of the morning trading session. It dropped 0.6 percent in the last 49 minutes of afternoon trading to close 0.3 percent lower for the day.

“The context of serial disappointment from exports, and continuing deflation makes the central bank more likely to engineer a weaker currency,” Mirza Baig, Singapore-based head of foreign exchange and interest-rate strategy at BNP Paribas SA, wrote in a report Friday. “It’s to maintain parity with regional peers.”

Intervention Warnings

The Federation of Korean Industries on Friday called on Korea’s government to halt the won’s advance versus the yen, the third manufacturers’ group in the nation to ask for such action this week. The country’s trade association said Thursday that more than half of 307 exporters it surveyed expect shipments to miss targets if the won stays around 9 per yen this year.

The exchange rate was 8.94 as of 3:38 p.m. in Seoul and breached 8.90 this week for the first time since 2008.

The International Monetary Fund said in a May 13 report the won appears to be weaker than the level consistent with fundamentals. Foreign-exchange interventions should be limited to smoothing excessive volatility, not preventing needed adjustments, it said. The U.S. Treasury said last month that it had stepped up discussions with South Korea over its exchange-rate intervention, which appeared to have “substantially increased” in December and January.

South Korea and Taiwan aren’t likely to cut borrowing costs to weaken their currencies, although the Bank of Korea has an easing bias, said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore.

“South Korea can use verbal intervention, but it has not been that effective as the yen-won rate continues to move down steadily,” she said. “For Taiwan, as they have not adjusted the interest rate for some time, there is no expectation for an interest-rate cut to weaken Taiwan’s dollar.”

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