Rupiah Forwards Gain Most in a Week as Japan Announces Stimulus

Rupiah forwards advanced by the most in more than a week after Japan announced a 10.3 trillion yen ($116 billion) stimulus program, improving Indonesia’s export outlook. Government bonds declined.

The spending will boost gross domestic product in Japan, Indonesia’s second-largest overseas market, by around two percentage points, the government said in a statement released today in Tokyo. Bank Indonesia will take steps to respond to “out of proportion” concerns over the current-account deficit, estimated to have been a record 2.3 percent of GDP last quarter, Governor Darmin Nasution said in Jakarta today. The country will hold presidential elections in 2014.

“The fiscal stimulus should support Japanese growth, and will likely help demand for imports from the region,” said Prakriti Sofat, a regional economist at Barclays Plc in Singapore. “We expect rupiah underperformance to increase over the medium-term as a larger political-risk premium is priced in against the backdrop of a structural current-account deficit and the risk of a nationalistic policy bias.”

One-month non-deliverable forwards advanced 0.5 percent, the most since Jan. 2, to 9,935 per dollar as of 3:38 p.m. in Jakarta, data compiled by Bloomberg show. The contracts fell 1.2 percent this week. They are at a 3 percent discount to the spot rate, which rose 0.3 percent to 9,636 today, prices from local banks compiled by Bloomberg show. Non-deliverable forwards are settled in dollars.

Trade Talks

U.S. lodged a complaint against Indonesia over its non-automatic import licenses and quotas, which “have significant trade-restrictive effects on imports,” the World Trade Organization said in an e-mailed statement today.

The rupiah’s one-month implied volatility, a measure of expected moves in exchange rates used to price options rose 25 basis points, or 0.25 percentage point, to 6.75 percent, the highest level since Sept. 27. It has advanced 1.05 percentage points this week.

The yield on the government’s 5.625 percent bonds due May 2023 climbed two basis points, or 0.02 percentage point, to 5.24 percent today, prices from the Inter Dealer Market Association shows. It increased 12 basis points this week.

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