Week in FX Asia – Are the South Koreans playing their “currency war” card?

Jumping on the rate cut bandwagon and keeping up with Australia this week was South Korea. It seems that more emerging economies do not want to be left stuck behind their own curves now that Abenomics is well in hand. Up until now, stealth intervention by the Bank of Korea was the name of the game and seemed to be having a limited impact.
After wrong footing markets with no change to its +2.75% policy rate last month, BoK finally pulled the trigger this week and delivered a -25bps rate cut.

Alongside the Central Bankers predictable rhetoric of subdued inflation and weaker industrial production data, the Yen’s recent weakness has clearly weighed on the mind of BoK Governor Kim Choong-soo. While unacknowledged, the RBA’s surprise overnight cash rate cut midweek, to a record low of +2.75%, may have also factored into Korean policy makers decision-making. Up until now and in a global world deprived of decent capital returns both of these countries have been a fund manager’s favorite for yield pick up.

Even the Bank of Thailand’s (BoT) Governor Prasarn Trairatvorakul is turning dovish and is shifting policy rhetoric toward cuts. Until now, tension between the Thai finance ministry and the Central Bank over the THB strength has been on high alert. However, the recent rift with the BoT and fears of foreign investment curbs are beginning to take its toll on the THB bulls now that the central bank is possibly considering a minimum holding period for foreign investors in Thai bonds. The THB has since lost half of its year-to-date gains (+4%) despite strength in other AXJ (Asia ex-Japan) currencies.

It seems more and more that a weak JPY and a slow global recovery is posing risks to Korea’s economy, and reason enough for the BoK to closely monitoring the forex market, similar to other emerging economies. This is the new norm for APAC economies now that Japan has free rein to weaken its own currency.

• China Increases Trade with Emerging Economies
• Japan Nikkei Hits 5 Year Best Boosted by Weak Yen
• Japan Investors Fuel Capital Outflow
• BoJ Kuroda Says He is Not Targeting Currency Rates
• Lew Warns Japan to Stay Within Bounds
• Topix Index heading to 4 1/2 Year High
• Japan Current-Account Surplus Growing on Weaker Yen
• India to Surpass China as Preferred Japanese Investment Destination
• Yen Breaks 100 for the First Time in 4 Years
• Bank of Korea Cuts Rates to Counter Yen Weakness
• Beijing Measures Will do Little to Derail a Strengthening Chinese Currency
• Bank of China Could Change Monetary Policy to Curb Yuan Specultion
• Asian Shares to New Highs After Robust China Trade Data
• China Exports Beat Forecasts
• Renewed Skepticism of China Figures as Exports Gain
• China Aims to Loosen Control of Yuan
• Asian Development Bank to Maintain Lending Support
• China Services Growth Slows in April Questions Recovery
• Malaysian Ringgit Rally after Election Results

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