Thai Baht Jumps Most in 10 Months as Japan Easing Fuels Inflows

Thailand’s baht jumped the most in 10 months, breaching 29 per dollar for the first time since 1997, as demand for the nation’s bonds rose amid unprecedented monetary easing in Japan. Stocks dropped to a two-month low.

The currency jumped 1 percent from its April 5 close to 29.02 against the greenback as of 4:51 p.m. in Bangkok after reaching 28.93 earlier, according to data compiled by Bloomberg. That’s the biggest advance since June 4. The yield on sovereign debt due June 2023 fell three basis points to 3.46 percent, the lowest level since Nov. 6. Local financial markets were shut yesterday for a holiday.

Today’s baht gains were “too fast” and the Bank of Thailand is ready to intervene if the currency’s moves are not consistent with fundamentals, Governor Prasarn Trairatvorakul said in Bangkok. Capital controls are not being considered, he added. Global funds bought $292 million more Thai government debt than they sold last week, adding to net purchases of $9.6 billion in the first quarter, official data show. That compares with $31 billion for the whole of 2012.

“With floods of cash in Japan where rates are so low, investors are seeking higher returns and in this region, Thailand looks good thanks to its stable economy and political situation,” said Tsutomu Soma, manager of Rakuten Securities Inc.’s fixed-income business unit department in Tokyo. “And the weaker yen won’t be harmful for Thailand as it doesn’t compete with Japan, unlike South Korea or China.”

Best Performer

Prime Minister Yingluck Shinawatra has eased tensions since taking power in 2011 by shelving measures that would allow a return of Thaksin Shinawatra, her brother, who was ousted in a 2006 military coup. Gross domestic product increased 6.4 percent last year, trailing only the Philippines’ 6.6 percent growth among Southeast Asia’s five biggest economies.

The baht has strengthened 5.3 percent this year versus the greenback, the biggest gain among Asia’s 11 most-used currencies, according to data compiled by Bloomberg. It reached 28.93 earlier today, the strongest level since a devaluation in 1997 that sparked the Asian financial crisis.

Neighboring Malaysia’s ringgit rose less than 1 percent this year amid concern falling support for Prime Minister Najib Razak would jeopardize economic reforms and Indonesia’s rupiah weakened 0.8 percent. Foreign funds have been shunning Malaysian debt due to the political uncertainty and avoiding Indonesian bonds because of its current-account deficit, boosting inflows into Thailand, Prasarn said March 20.

Yen Slide

The Bank of Japan said last week it plans to purchase 7.5 trillion yen ($78.6 billion) of bonds a month and double the monetary base, which includes cash in circulation, in two years. The yen tumbled 13 percent this year against the dollar following an 11 percent slide in 2012.

The weaker yen may have a positive impact on Thailand as the country is part of Japan’s supply chain, Prasarn said today. It may also spur demand for the baht among investors, he added. The Japanese currency touched a four-year low of 99.66 per dollar today.

“Japan’s monetary easing is leading to speculation of more incoming funds to Asia,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “That’s supporting the baht and government bonds.”

Bullish Options

Options traders are the most bullish on the baht since July 2006. Call options granting the right to buy the currency in a month cost 0.16 percentage point more than put contracts yesterday and today, the biggest premium since July 2006.

The Bank of Thailand held its benchmark interest rate at 2.75 percent on April 3, even amid calls for a cut by Finance Minister Kittiratt Na-Ranong. He said that day he wasn’t comfortable with the level of borrowing costs that are attracting capital inflows. The rate compares with a maximum of 0.25 percent in the U.S. and 0.1 percent in Japan.

Today’s baht “move was probably exaggerated as onshore markets were closed for a public holiday yesterday,” said Kozo Hasegawa, a foreign-exchange trader in Bangkok at Sumitomo Mitsui Banking Corp. “In addition, a break of the recent high and the 29 level also accelerated the move. The BOJ stimulus theme is still a factor in the market.”

Global funds sold a net $306 million Thai equities last week, taking this year’s net sales to $182 million, according to exchange data. The SET Index slid 1.3 percent today, closing at the lowest level since Jan. 25.

Bangkok Bank Pcl dropped 2.6 percent, pacing declines in banking stocks on the Thai bourse. An extended holiday period next week is causing a drop in trading volume, and Thai share valuations remain attractive, Charamporn Jotikasthira, the Thai stock exchange’s president, told reporters today.

New Fund

The baht was also boosted by overseas purchases of units in an infrastructure fund that’s being sold by the operator of Bangkok’s elevated SkyTrain network, Governor Prasarn said. The sale of the fund also drew money away from the local stock market, Charamporn said.

BTS Group Holdings Pcl’s BTS Rail Mass Transit Growth Infrastructure Fund is raising about 62.5 billion baht ($2.2 billion) in Thailand’s biggest initial public offering. The fund sold 5.79 billion units at 10.8 baht apiece, BTS said on April 5.

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