BLBG: Taiwan Said to Curb Bullish Currency Bets as Yen Hits 2008 Low
Taiwan tightened limits on local banks’ bullish bets on the local dollar, boosting efforts to rein in the exchange rate and defend export competitiveness after the yen tumbled to the lowest since 2008.
The Central Bank of the Republic of China (Taiwan) cut a daily cap on the net U.S. dollar short position that can be held by each bank to $5 million from $10 million, according to two traders at lenders that were informed of the change by the monetary authority. The new rule comes into effect tomorrow, they said. A short position in the greenback is a call that it will weaken against the local currency.
Taiwan’s recovery from the slowest economic expansion since 2009 is sputtering as its dollar trades at near a five-year high against the yen, making it harder for domestic electronics makers to compete against Japanese rivals. The island’s gross domestic product increased in the first quarter at less than half the pace economists estimated, putting pressure on policy makers to weaken the currency to protect overseas sales.
“It’s very apparent that the central bank wants to send the local currency lower,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “The Taiwan dollar has been depreciating against the greenback lately, but the yen depreciates even more. The purpose is to keep Taiwan’s goods competitive in overseas trade.”
Taiwan is seeking to support overseas shipments that slumped 1.9 percent in April after the yen slid more than 22 percent in the past year and touched 103.31 per dollar on May 17, its weakest level since October 2008. That is threatening the island’s technology companies, which compete with Japan’s Sony Corp. and South Korea’s Samsung Electronics Co. in global markets.
Taiwan Dollar
The Taiwan dollar fell 0.1 percent to NT$29.960 versus the greenback today in Taipei. The currency has weakened 2.8 percent against the U.S. dollar so far this year, while the yen lost more than 15 percent. The central bank has sold the local currency toward the close on most days in the past year, according to traders who asked not to be identified.
One-month non-deliverable forwards for the Taiwan dollar were little changed today at NT$29.888 versus the greenback, according to data compiled by Bloomberg. The contracts touched NT$29.765 yesterday, the strongest level since May 13. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 18 basis points, or 0.18 percentage point, to 4.54 percent.
Yen Weakness
Japan’s currency declined versus 13 of its 16 major peers today after Bank of Japan policy makers affirmed a plan to double the monetary base over two years. South Korean Finance Minister Hyun Oh Seok said this week the nation’s government should ease volatility in the won if it intensifies because of the yen. The Korean currency has slid 4.4 percent against the dollar in 2013.
Taiwanese GDP rose 1.54 percent in the three months ended March from a year earlier, after increasing 3.72 percent in the fourth quarter, the statistics bureau said April 30. The gain was less than all 17 estimates in a Bloomberg survey of economists, who had a median projection of 3.1 percent. Last year’s 1.3 percent annual growth rate was the slowest since a 1.9 percent contraction in 2009.
Overseas demand for the island’s products remains weak. Export orders, indicative of shipments in the next one to three months, slumped 1.1 percent in April from a year earlier, declining for a third straight month. HTC Corp. (2498), Taiwan’s largest maker of smartphones, posted its lowest quarterly profit on record in April.
To contact the reporters on this story: Chinmei Sung in 台北 at csung4@bloomberg.net; Argin Chang in Taipei at achang153@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net
