If Japan intervenes in YEN devaluation (under Ichiro Ozawa if able to win support to become PM, replacing current PM Naoto Kan). Asia will enter a trade war with it's self and also the US (re:China)
Of course central bank intervention in the market usually incurs losses (re: Swiss National Bank propping the EUR in May/June 2010)
Still Asian FX reserves took a beating in May/June 2010 when risk aversion caused the Korean WON and YEN to surge. If Japan goes mad and starts buying USD, China will also buy YEN and USD. South Korea, which is nursing losses from their last intervention, may just sit tight, or cut rates. That happens (rate cuts), Asia will go into a devaluation trade war, which the US will be drawn into.
"By David Roman
A Dow Jones Newswires Column
SINGAPORE (Dow Jones)--A Japanese intervention in forex currency markets might well fail to weaken the yen, but should have a near-term impact on other Asian currencies.
Japanese authorities have ratcheted up their rhetoric against a strong yen as the currency rises steadily, hitting a 15-year high against the dollar Tuesday.
Some analysts say Japanese intervention would embolden other Asian central banks, many of which have intervened heavily so far this year, to increase their own dollar purchases to protect their exporters. Likely candidates for a quick correction under that scenario would be the Taiwan dollar, Korean won and Singapore dollar, all currencies closely watched by their central banks.
Asian central banks "would be more likely to intervene" after a potential Japanese move, as it "would make them more comfortable with intervention," said Sean Callow, a forex strategist with Westpac. "All Asian central banks keep an eye on what the others are doing; they haven't been shy about intervening."
Japanese intervention might become likelier if Ichiro Ozawa, a kingmaker in the ruling Democratic Party of Japan, wins an internal party election Tuesday to replace Naoto Kan as party leader and prime minister. Ozawa has espoused a more activist line to curb the yen and protect Japanese exporters.
That could become a matter of concern for Japan's competitors, including South Korea and Taiwan, which have taken market share from Japanese exporters in fields such as automobiles and electronics.
Over the past two years, as the yen rose 19% against the U.S. dollar, the Korean won has lost 5% against the greenback and the Taiwan dollar has been flat. That has helped those economies -- which grew more than 7% on-year in the second quarter, compared with 1.5% growth in Japan -- to recover faster from the global slowdown.
Westpac's Callow said China's response to any Japanese intervention also would be key, as the Chinese yuan has become an increasingly relevant benchmark for Asian currencies. With Japan hectoring China to intervene less to weaken the yuan, China could react to Japanese intervention by slowing or even reversing the pace of yuan appreciation.
Singapore, where the local dollar rose to an all-time high against the greenback earlier this week, is another candidate to mirror any Japanese intervention. A person familiar with the Monetary Authority of Singapore's thinking said the central bank would be more likely to step in if Tokyo does.
On the other hand, Indonesia could find it hard to increase its intervention. As of last month Bank Indonesia's forex reserves stood at $81.3 billion, up 36% on the year -- among the world's largest gains -- as a result of sustained dollar purchasing in forex markets.
Bank Indonesia has expressed reservations about the quick buildup and announced several measures to increase monitoring of investment inflows in recent months, looking to find other ways to lessen pressure on the rupiah.
That's because Indonesia's high policy rates, now at 6.5%, make it more expensive to keep dollar reserves there than in other countries, as commercial banks must be paid interest in local currency in exchange for keeping dollars with the central bank."
No comments:
Post a Comment