Taiwan Dollar Forwards Fall This Week as Yen Drops; Bonds Steady

Taiwan dollar forwards had their biggest weekly loss in seven months on speculation a weakening yen will prompt the island’s central bank to step up efforts to prevent gains in the local currency.

Premier Sean Chen asked the island’s central bank and economic affairs ministry to closely monitor the effects of the Bank of Japan’s monetary easing measures aimed at weakening the yen, which has dropped 12 percent versus the dollar in the past three months. Japan’s Deputy Economy Minister Yasutoshi Nishimura said yesterday the currency’s decline isn’t over after the Bank of Japan announced open-ended easing to revive the economy. Taiwan’s electronics manufacturers compete globally against Japanese counterparts.

“Taiwan will probably maintain the kind of operation they have been doing, which aims to moderate the appreciation pressure on the currency,” said Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore. “The worst may be over but it’s still a struggle for exporters. Taiwan and Korea are the two most affected by a weakening yen.”

One-month non-deliverable forwards for Taiwan’s dollar slid 0.8 percent this week to NT$29.148 versus the greenback as of 4:28 p.m. in Taipei, the biggest loss since the period ended June 1, according to data compiled by Bloomberg. The contracts fell 0.4 percent today.

The currency retreated 0.7 percent this week to NT$29.25 against its U.S. counterpart, based on prices from Taipei Forex Inc. It was 0.4 percent lower today, having extended a 0.1 percent drop in the final minute of trading on suspected intervention by the central bank.

The monetary authority has sold its currency to counter gains in the run-up to the close on most days in the past nine months, according to traders, who asked not to be identified. The Taiwan dollar touched NT$28.928 on Jan. 14, the strongest level since September 2011.

Less Volatile

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 49 basis points, or 0.49 percentage point, to 3.38 percent in the past five days. The gauge rose 63 basis points today. It reached 2.6 percent on Jan. 22, the lowest level since September 2007.

Taiwan’s exports increased 9 percent in December from a year earlier, after a 0.9 percent gain the previous month, data showed on Jan. 7. Growth averaged 10 percent in the past decade.

The yield on Taiwan’s 1.125 percent government bonds due September 2022 was little changed today and this week at 1.16 percent, according to Gretai Securities Market.

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