Monday, January 17, 2005

Asian currency round-up: Taiwan dollar up, yen up, won up, renminbi down.
Taiwan's dollar had its biggest gain in almost seven weeks, leading a rally in Asian currencies, on speculation investors abroad are increasing share purchases. . . .

South Korea's won rose on speculation the yen's gain to a five-year high versus the dollar Jan. 14 reduces the need for the Bank of Korea to sell its currency to keep exporters competitive with Japanese rivals. . . .

Other Asian currencies also strengthened after the yen's advance. The appreciation in regional currencies today extended weekly gains from last week. . . .

The Singapore dollar rose 0.2 percent to S$1.6351, Thailand's baht climbed as much as 0.4 percent to 38.57, the highest since May 11, 2000. The Indonesian rupiah rose 0.2 percent to 9,140. The Philippine peso gained as much as 0.4 percent to 55.46, its strongest since May 6.
Everyone seems to be taking their signals from Japan. If the Bank of Japan is willing to let the yen rise vis-a-vis the renminbi (oh, and against that other currency, too -- the US dollar or something like that), then so will all the Asian small fry. The name of the game in Asia seems to be for Japan, Korea and Taiwan to compete against one another for the same export markets -- to the US, to China and to one another -- while using their stronger currencies to invest in China so as to compete against one another for the same exports markets, etc. etc. etc.

The Chinese Ministry of Commerce reported last week that FDI into the country hit a record $60.6bn in 2004 while contracted investment -- "a sign of future plans" as they say -- leaped up to $153.5bn. According to Bloomberg,
Companies are rushing to invest in China ahead of an anticipated revaluation of the nation's currency, the yuan, this year. Economists including Yiping Huang at Citigroup Inc. say they expect China's leaders to let the yuan appreciate against the U.S. dollar in 2005, easing a decade-old peg that U.S. politicians partly blame for a ballooning trade deficit with China.
There are a lot of speculators out there, as well as speculative direct investments, putting a lot of pressure on the renminbi to rise. China did pretty well in 2004 in cooling the economy down, and I must say I'm fairly skeptical that the world is in store for any meaningful change to the renminbi peg. More administrative control and higher interest rates, yes, but when you've got the world -- and especially the US -- by the family jewels, why let go?

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