On June 28, the People’s Bank of China set the central parity rate for the yuan at the lowest level in eight months.
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Top Asian currency officials are fighting back bets that this week sent their currencies falling to their lowest levels in seven months, adding to this year’s underperformance.
Japanese finance officials have been warning this week against ‘excessive’ depreciation yen.Malaysian officials echoed the same concerns on Tuesday night ringgitwhile China revised Yuan The currency was supported by stronger-than-expected daily interest rates twice this week.
The comparative movements of the world’s major currencies, including the yen, renminbi and the U.S. dollar, have highlighted differences in domestic interest rates and currency cycles. Meanwhile, central banks around the world continue to struggle with sticky inflation or slowing economic growth in the wake of Covid-19, Russia’s war on Ukraine and the energy crisis.
The yen has fallen more than 9 percent against the dollar so far this year, the Malaysian ringgit has lost about 6 percent and the yuan has fallen nearly 5 percent. All three currencies hit seven-month lows against the dollar this month, among the hardest-hit currencies in Asia this year.
Commonwealth Bank of Australia economist and currency strategist Carol Kong said in a note on Wednesday that the risk of Japan’s finance ministry intervening in the foreign exchange market has increased. Authorities are likely to buy the yen “as USD/JPY rises further,” she added.
“However, we note that the pace of change, not the extent of change, is what matters most when the Ministry of Finance decides to intervene,” Kong said. “Potential foreign exchange intervention could exacerbate yen volatility.”
The policy divergence between the Bank of Japan’s ultra-loose monetary policy and the Federal Reserve’s aggressive tightening stance against inflation is driving a stronger dollar.
“We are watching currency movements closely with a strong sense of urgency,” Reuters report on wednesday, citing Japan’s chief currency diplomat Masato Kanda, repeating his comments on Monday. “If things become excessive, we will respond appropriately.”
Shunichi Suzuki say tuesday According to Reuters, there was a “sharp and one-sided move” in the yen’s slide, and Japanese authorities may need to take appropriate action if the trend becomes excessive.
The risk of yen intervention is high if the yen trades at 145-150 per dollar, Philip Wee, senior FX strategist at DBS Bank, said in a Wednesday note. The yen hovered around 144 against the dollar in Asian trade on Thursday.
Last year, the Ministry of Finance of Japan intervention On September 22, October 21 and October 24, the yen rose 150 against the dollar and fell to its lowest level since 1990, with about $68 billion supporting the yen.
opposition from malaysians
Bank Negara Malaysia said “The extent of the ringgit’s recent depreciation is not reflective of Malaysia’s economic fundamentals,” said Tuesday night.
“Bank Negara Malaysia will intervene in the foreign exchange market to stem what is seen as excessive currency volatility,” Assistant Governor Adnan Zaylani said in a statement.
“While the value of the ringgit will continue to be determined by the market, BNM expects the government’s ongoing measures to further strengthen the economy will help ensure that the ringgit better reflects the country’s fundamentals,” he added.
Further clarity on interest rates from the Federal Reserve and possible positive signs of Chinese stimulus could provide support to the ringgit and Asian currencies, the central bank said.
In a client note on Wednesday, Goldman Sachs economists pointed to a deterioration in Malaysia’s overall balance of payments position due to sharp increases in foreign direct investment, investment income outflows and bond outflows as a key reason underpinning the ringgit’s weakness.
“In any case, we think the central bank will only step in to dampen volatility rather than try to change the general direction of USD/MYR,” they added.
Chinese intervention
After twice setting a stronger-than-expected daily reference rate for the yuan, the People’s Bank of China refrained from doing the same on Wednesday.
The People’s Bank of China’s daily onshore yuan fixing is closely watched for clues about its official stance on the yuan’s movement. The central bank allows the currency to trade within a narrow 2% band at the daily midpoint.
On Wednesday, the People’s Bank of China set the daily mid-point reference rate for the currency it manages at 7.2101 per dollar, compared with a Reuters estimate of 7.2092 per dollar. The move sent the yuan lower, back near its weakest level since early November.
Although the Chinese government has so far been silent on economic stimulus Growth in the world’s second-largest economy has slowed. Cumulative profits at Chinese industrial firms in the first five months of 2023 have fallen by 18.8%, official data showed on Wednesday, adding to the woes.
“The experience of currency performance post-intervention suggests that central bank headwinds can at best slow the momentum of currency swings but do little to change trends,” JPMorgan economists wrote in a note on Wednesday.
“Given that growth pessimism and widening yield differentials lie at the heart of renminbi weakness, a return to renminbi strength would require a more sustained fading of these two fundamental headwinds,” they added.