Wednesday, February 23, 2005

No sooner did the Koreans start a brush fire in the Dollar Bloc National Forest than a five alarm was sounded with brigades from Tokyo, Seoul and Taipei rushing to the scene to stamp it out.
The dollar advanced in Europe after Japan's Ministry of Finance and South Korea's central bank said they have no plans to reduce U.S. currency holdings. Taiwan's central bank said it hasn't been selling dollars.

The announcements by Japan, Korea and Taiwan, accounting for three of the world's four largest currency reserves, came a day after the Bank of Korea sparked the biggest drop in the dollar against the euro in more than six months by saying it planned to change the composition of its holdings. The three central banks have a combined total of $1.26 trillion in reserves.

``They're trying to put out the fires caused by the comments on diversification yesterday,'' said Toshi Honda, a currency strategist in London at Mizuho Corporate Bank, a unit of Japan's biggest lender. ``Today's denials are having an impact and we're seeing the dollar rebound.'' . . .

Masatsugu Asakawa, director of the foreign exchange markets division at the Ministry of Finance, said Japan has no plans to diversify its reserves. ``At this stage, we don't have such plans'' to diversify reserves, Asakawa told Bloomberg at the ministry in Tokyo.

Taiwan's central bank said in an e-mailed press release in Taipei that it hasn't been selling dollars.

The Bank of Korea's press release today followed the won's appreciation to more than 1,000 against the dollar for the first time since November 1997. ``The Bank of Korea will not change the portfolio of currencies in its reserves due to short-term market factors,'' the bank said.
Yesterday I asked "How long can Korea stand the pain?". It looks like the answer is "about 24 hours".

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