Taiwan Dollar Forwards Decline for Fourth Week on Yen Weakness

Taiwan dollar forwards completed a fourth weekly decline as the yen’s slide to a 2 1/2-year low fanned speculation the island’s central bank will rein in the exchange rate to protect exports.

Global funds bought $709 million more local stocks than they sold in the first three days of the week, taking net purchases this year to $1.6 billion, exchange data show. Policy makers warned on Jan. 29 they will intervene in the currency market if “irregular factors,” such as large fund flows, cause excessive volatility. Taiwan and Japan compete in the global market for electronic products. Exports jumped 21.8 percent in January from a year earlier, official data showed yesterday.

“The Taiwan dollar has been dragged down by the yen’s weakness recently, and will probably stay around NT$29 to NT$30 in the near term,” said Ma Tieying, a Singapore-based economist at DBS Group Holdings Ltd. “Taiwan’s improving fundamentals will support a currency rally this year.”

One-month non-deliverable forwards fell 0.4 percent this week and 0.5 percent today to NT$29.74 versus the dollar as of 4:45 p.m. local time, data compiled by Bloomberg show.

In the spot market, the currency dropped 0.3 percent to NT$29.75 against its U.S. counterpart from a week ago, according to prices from Taipei Forex Inc. It retreated 0.4 percent today and closed the weakest since Sept. 11. Local stock and bond markets were shut starting yesterday ahead of next week’s Lunar New Year holiday.

The central bank has sold the local currency near the close on most days in the past 10 months, according to traders who asked not to be identified.

Volatility Rises

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, rose 95 basis points, or 0.95 percentage point, to 5.5 percent during the five-day period, according to data compiled by Bloomberg. It jumped 136 basis points today.

The overnight interbank lending rate was little changed at 0.389 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

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