Philippine Peso Falls to 4-Month Low on Yen, North Korea Risks

The Philippine peso fell to the lowest level in almost four months after the yen weakened and as heightened risk of conflict on the Korean Peninsula prompted some investors to sell local assets.

The yen dropped to the lowest level against the dollar since May 2009 as South Korea warned of a possible North Korean missile test on April 10. The yield on three-year bonds rose. Bangko Sentral ng Pilipinas is monitoring capital flows after the Philippines achieved an investment grade ranking from Fitch Ratings last month, Governor Amando Tetangco said April 5.

“There’s no immediate reason to buy the peso and, coupled with the weak yen and the tension on the Korean peninsula, we’re seeing some profit taking in equities and debt,” said Alan Cayetano, head of foreign-exchange trading at Bank of the Philippine Islands in Manila, the nation’s biggest lender by market value.

The peso declined 0.3 percent to 41.27 per dollar at the close in Manila, according to Tullett Prebon Plc. It touched 41.315, the weakest level since Nov. 16. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose eight basis points to 4.59 percent.

Fitch raised the Philippines to BBB- from BB+ on March 27. The next day, Tetangco said the central bank is preparing to announce a new set of “liberalization measures” to encourage outflows as early as April.

“After the upgrade, we’re probably getting a much-needed correction, which I don’t think will lead to any excessive peso weakness,” Cayetano said. “The BSP will probably remain proactive in dealing with the flows by rolling out the next wave of liberalization measures and implementing more cuts in the special-deposit account rate.”

Increase Volatility

Bank of Japan measures “are expected to increase volatility in the currency markets,” Tetangco said in an e-mail today. “Over the medium term, however, if the measures prove to be successful in lifting Japanese growth, it should be positive for us given our strong economic ties with Japan.”

Bangko Sentral, which next reviews policy on April 25, reduced the rate on its special accounts by about half a percentage point each in January and March meetings. The central bank will consider the impact of Japan’s measures on local inflation and asset prices, Tetangco said in his e-mail.

The yield on the 9.125 percent bonds due September 2016 rose eight basis points, or 0.08 percentage point, to 2.60 percent, according to Tradition Financial Services. Philippine financial markets will be shut for a holiday tomorrow.

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