Philippines Unfazed by Weak Yen as Purisima Supports Japan
Philippine Finance Secretary Cesar Purisima said he is unconcerned that Japan is letting the yen tumble, setting him apart from other Asian policy makers who argue the currency’s slide is hurting their economies.
While Japan’s Prime Minister Shinzo Abe’s pledge for unlimited monetary stimulus pushed the yen to a five-year-low yesterday, it may also put Asia’s second-largest economy on a recovery path, buoying manufacturers in the Philippines, Purisima said yesterday. Exports from the Philippines and Japan don’t compete, and their industries supplement each other, he said. Japan was the biggest buyer of Philippine goods in 2012.
“The healthier Japan is, the better for the Philippines,” Purisima, 53, said in an interview at Bloomberg’s headquarters in New York. “If the devaluation and what they are doing now will lead to a faster growing Japan, that should help us. We are hopeful.”
The yen, which slipped beyond 102 per dollar this month for the first time since 2008, threatens market stability, South Korea’s central bank Governor Kim Choong Soo said on May 9 after unexpectedly cutting the nation’s benchmark interest rate. The currency’s depreciation may spur Asian neighbors to weaken exchange rates and intensify trade disputes, the State Administration of Foreign Exchange, China’s foreign-exchange regulator, said in a report in April.
“Philippines is not in direct competition with Japanese companies compared to others like South Korea,” said Eugene Leow, a Singapore-based economist at DBS Group Holdings Ltd. “Philippines forms part of the Japanese companies supply chain. If final demand for Japanese goods picks up due to the yen, there will also be a pick-up for intermediate goods produced in the Philippines.”
The yen rose 0.3 percent to 102.08 per dollar at 9:50 a.m. in Tokyo from yesterday, when it touched the weakest intraday level since October 2008. The peso climbed 0.7 percent against the yen and slipped 0.1 percent to 41.125 against the dollar.
The stronger peso hasn’t deterred foreign investment, and the Philippines has seen a “dramatic increase” in Japanese investors over the past year as they seek to diversify from China, Purisima said. The currency reached 2.477 against the yen on May 13, the strongest level since August 2008.
China’s rising costs and a territorial dispute with Japan have prompted Japanese companies to shift more operations to Southeast Asia. Total investment pledges in the Philippines climbed to a record $15.9 billion last year, Trade Secretary Gregory Domingo said in February, as Japanese companies including Murata Manufacturing Co. boosted expansion.
The Philippines won its first investment-grade credit ratings this year from Fitch Ratings and Standard & Poor’s as President Benigno Aquino cracked down on corruption, pursued tax cheats and narrowed a record budget deficit. The economy grew 6.8 percent in the fourth quarter from a year earlier, and the peso reached a five-year high of 40.54 per dollar in January, prompting policy makers to take steps to curb capital flows.
Bangko Sentral ng Pilipinas has lowered the rate on funds kept in special deposit accounts three times this year, and held the rate it pays lenders for overnight deposits at a record low at its review April 25. The central bank announced April 18 that it had broadened the range of approved outward investments to spur capital outflows and slow the peso’s gains.
Policy makers around the world have moved to counter currency appreciation and stimulate growth, with Sri Lanka and the Bank of Korea cutting borrowing costs last week, following the lead of Australia, Europe and India this month.
While the peso remains “within acceptable limits,” policy makers will stay “vigilant” to prevent excessive strength, Purisima said. “It’s something we have to monitor closely,” he said. “The important thing is that we are not alone. Our competitor countries are in the same boat.”
Policy makers can keep lowering the SDA rate and adopt so-called macro prudential measures to stem the currency’s rally, Purisima said. To help reduce capital inflows, the government will refrain from borrowing dollars abroad this year, he said.
Asked if there are any plans to set up a sovereign wealth fund, Purisima said such a project is unlikely under the current administration. The central bank and the Finance Ministry are “observing” the practices of other countries such as Singapore and Malaysia, and no decision has been made, he said.
Central bank Governor Amando Tetangco told reporters on March 20 that Bangko Sentral can sell dollars to the government to finance a sovereign wealth fund to help contain the peso.