The New Taiwan dollar is likely to weaken past NT$30 against the US dollar after the Tomb Sweeping Festival holiday because of weakness in the Japanese yen, market analysts said on Saturday.
National Chengchi University economics professor Norman Yin (殷乃平) said a recent plunge in the yen reflected the Bank of Japan’s new liquidity easing measures.
The Japanese central bank announced on Thursday that it intended to increase its bond purchases to ￥7.5 trillion (US$77 billion) a month, far beyond the ￥5.2 trillion expected by the market, and double the country’s monetary base.
The Bank of Japan’s policy drove down the value of the yen to ￥97.83 against the US dollar at one point on Friday, the weakest since June 2009.
On Wednesday, the last trading day ahead of the holiday, the NT dollar closed at NT$29.925, weakening from NT$29.920 a day earlier.
Yin said most Asian currencies have engaged in competitive devaluation recently to keep their exports competitively priced in foreign markets, and the yen’s plunge meant that other regional currencies would likely follow suit.
Because of Japan’s aggressive quantitative easing measures, the yen is likely to test the 100 mark against the greenback and trigger a further depreciation of regional currencies, Yin predicted.
Escalating tensions on the Korean Peninsula could also roil currency markets, Yin said.
North Korea’s threats of war have already dragged down the value of the won, which could put downward pressure on other regional currencies, he said.
Facing these market pressures, the NT dollar should weaken past the NT$30 mark, Yin said, and he advised investors to pay close attention to how far above NT$30 the US dollar would go.
Since the beginning of this year, the NT dollar has fallen 2.51 percent, the won has lost 4.32 percent and the Japanese yen has dropped about 8 percent against the US dollar.
A dealer with a European bank operating in Taiwan said he expected the pace of the NT dollar’s depreciation to accelerate and test the NT$30 mark today, the first trading day after the holiday.
Dealers said the central bank might even intervene to speed up the local currency’s depreciation, because the bank is reluctant to allow the NT dollar to lag behind in the ongoing regional currency war.
Meanwhile, the New Taiwan dollar touched its weakest level in more than seven months on Wednesday as optimism that the US economy might be recovering boosted investors’ demand for the greenback.
The NT dollar closed at NT$29.925, but touched NT$29.975 earlier, the weakest level since Aug. 31.
The central bank has sold the local currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.
One-month non-deliverable forwards rose 0.1 percent to NT$29.820 per dollar, according to data compiled by Bloomberg.