Taiwan Dollar Volatility at Five-Year Low on Intervention Risk

A gauge of expected fluctuations in Taiwan’s dollar was near a five-year low on speculation policy makers will curb the pace of appreciation to protect exporters.

The island’s central bank is likely to weaken its currency should the South Korean won or Japanese yen depreciate, according to First Securities Inc. in Taipei. Korean Finance Minister Bahk Jae Wan said today the won’s recent gains could hurt companies such as automakers. Electornics manufacturers in Japan, South Korea and Taiwan compete against one another globally.

“Taiwan watches the South Korean won,” said Eric Hsing, a fixed-income trader at First Securities. “If the yen depreciates, Korea will weaken its currency too.”

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, held at 2.8 percent as of 4:15 p.m. local time. It reached 2.6 percent earlier, the lowest level since September 2007.

Taiwan’s monetary authority has sold its currency to counter gains on most days in the past nine months, according to traders, who asked not to be identified. The central bank wants to have limited moves in the exchange rate and yields because the economy is export-driven, Hsing said.

Export Orders

Taiwan’s dollar declined 0.1 percent to NT$29.095 against its U.S. counterpart, based on prices from Taipei Forex Inc. The currency was 0.3 percent stronger in the run-up to the final minutes of trading before surrendering its advance on suspected intervention. The currency appreciated 4 percent last year and has gained 0.1 percent so far in 2013. The South Korean won advanced 0.2 percent this year, while the yen lost 2.5 percent.

The island’s jobless rate fell to 4.22 percent in December, the lowest level since April 2012, the National Statistics Office in Taipei reported today. Export orders, an indicator of shipments in the next one to three months, increased for a fourth month, rising 8.5 percent from a year earlier, government figures showed yesterday.

Japanese Prime Minister Shinzo Abe has pressed his central bank to expand monetary stimulus to revive economic growth and end deflation. The Bank of Japan Governor Masaaki Shirakawa and six of his nine fellow board members voted today for a 2 percent inflation target, to be achieved “at the earliest possible time,” and pledge to begin open-ended asset purchases from January 2014.

The yield on Taiwan’s 1.125 percent government bonds due September 2022 increased one basis point, or 0.01 percentage point, to 1.168 percent, the highest level in a week, according to Gretai Securities Market.

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