ASIAN CURRENCIES TUMBLE AS RISING OIL PRICES HIT THE REGION HARD

Global Finance, Jul/Aug 2005 by Platt, Gordon

ASIA

Call it the non-petro currency. The Japanese yen fell to an 8.5-month low against the dollar in late June, as oil prices rose above $60 a barrel. Other Asian currencies, such as the South Korean won and the Taiwan dollar, also suffered declines on worries about the region's vulnerability to ever-more-expensive overseas oil.

While the fall in the yen and the other Asian currencies is good news for the region's exporters, since they will gain a competitive edge, the jump in oil prices raised concern about a potential slowdown in global demand.

Record prices for crude oil could also dampen the fragile Japanese economy, since the country imports almost all of its oil. The Tokyo Stock Exchange clung to a gain of only 0.5% in the year-to-date as of late June. The Japanese economy continues to struggle following last year's recession, and the country's trade surplus shows signs of weakening.

Analysts say the fall in the Asian currencies has been amplified by the general rising trend of the dollar. The greenback has been supported by higher US interest rates and a relatively buoyant US economy. US consumer confidence hit a three-year high in June, suggesting that spending will remain strong.

With a revaluation of the Chinese currency expected later this year, the slump in Asian currencies may not last for long, however. Hiroshi Watanabe, Japanese vice finance minister in charge of international relations, said in late June that the yen could rise on speculation following a change in China's exchange rate. Watanabe said the revaluation of the yuan should not be too small, since that could lead to speculation on the need for a follow-up move even higher in the exchange rate. -Gordon Platt