Money & Investing: Asian Currencies Were Buoyed By Talk of a Weaker U.S. Dollar
July 20, 2001
By JASON BOOTH
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Asian currencies extended their gains against the dollar Thursday on speculation that President Bush may surrender to pressure at home and back away from the U.S.'s strong-dollar policy at the summit of the Group of Eight leading industrial economies, which begins Friday in Genoa, Italy.
But many Asian economists believe that the latest advances by Asian currencies might be a false dawn, with a relapse not far down the road.
For the moment, however, the market is focused on whether European officials will use the G-8 meeting to push U.S. financial officials to move off their strong-dollar stance. The G-8 comprises the U.S., Japan, Germany, France, the United Kingdom, Italy, Canada and Russia.
The expected nudge from Europe would come in addition to the pressure Mr. Bush is under from U.S. business leaders, who want to weaken the dollar in order to improve the competitiveness of U.S. exports and create jobs. Earlier in the week, Federal Reserve Chairman Alan Greenspan added to the dollar's woes by describing further softness in the U.S. economy. The resulting prospect of lower U.S. interest rates may prompt investors to shift money from U.S. assets to higher yielding assets overseas, analysts believe.
Late in Asia on Thursday, the dollar was quoted at 123.635 yen, down from 123.90 yen late Wednesday. In South Korea, the dollar finished at 1,305.8 won, down from 1,311.7 won Wednesday. While in Singapore, the dollar slipped to 1.8281 Singapore dollars from S$1.8319. The declines followed even bigger downward moves Wednesday.
Yet economists don't believe that Asian currencies are poised to make a sustained recovery. Expressing doubt that the U.S. will be moved to shift its dollar policy, they also maintain that the depressed state of most Asian economies, particularly Japan, will likely hobble Asian currencies for some time to come.
"I don't see [the dollar's weakness] as a positive event for Asian currencies," said David Simmonds, regional currency strategist at Citibank Salomon Smith Barney in Singapore. "I see short-term strength as an opportunity to take new long positions on the dollar" compared with Asian currencies.
1Bush Defends the Strong Dollar, Saying Market Decides Its Value (July 19)
Asian economists believe the only major currency likely to strengthen against the dollar in the coming months is the euro. Most see the yen, along with most other Asian currencies weakening further. "The yen is following the euro, rather that moving up by itself," said Bernhard Eschweiler, economist at Chase Manhattan Bank in Singapore.
Japan is showing signs of slipping back into recession. As such, the Japanese government appears more likely to press for a weaker yen in order to maintain exports. "Japanese policy makers have a preference for a weaker yen while the Europeans want a stronger euro," Mr. Eschweiler said. J.P. Morgan sees the Japanese currency weakening to 129 yen to the dollar by October, while the South Korean, Taiwanese and Thai currencies are all expected to weaken further.
The won is likely to move in tandem with the yen because Korean exports compete closely against their Japanese counterparts. Taiwan, which is facing major economic difficulties from the global electronics slowdown, also appears eager to let its currency fall further.
Moreover, jitters in the international financial markets over Argentina's financial difficulties make it unlikely that money will flow into Asian currencies in the near term. "In a high-risk environment, that's when emerging-market currencies underperform," Mr. Eschweiler said.
Meanwhile, economists in Asia see few indications that the U.S. is interested in backing away from its strong-dollar policy. Their view is that the strength of the dollar has been a magnet for foreign investment in U.S. assets in recent years, a trend that has helped fund the U.S.'s breathtaking economic advance and powered its financial markets. It's a trend that economists see as more important than boosting U.S. steel and corn exports.
"At the end of the day, manufacturing exports are not the most important part of the U.S. economy," said Desmond Supple, an economist at Barclays Capital in Singapore. "The day you see a weakening U.S. dollar is the day people start selling U.S. assets." We remain very bullish on the U.S. dollar." Barclays has a 12-month target of 140 yen to the U.S. dollar and a two-year target of 170 yen to the dollar.
-- Elizabeth Price of Dow Jones Newswires contributed to this article.
Write to Jason Booth at jason.booth@awsj.com2
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