The central bank yesterday said that it would not follow the lead of other countries in depreciating the nation’s currency, as a weakening yen has failed to prop up Japan’s exports, stock market and consumer spending as the Japanese government had hoped.
“The central bank will stand by its long-standing practice and keep the NT dollar relatively stable,” even though its peers might take drastic steps to deflate their currencies in the hope of stimulating economic growth, bank Governor Perng Fai-nan (彭淮南) said.
Perng made the statements in response to questions from lawmakers at the legislature’s Finance Committee meeting a few hours before the New Taiwan dollar closed down another 0.1 percent to NT$30.75 against the US dollar in Taipei trading, a nearly four-year low.
Photo: CNA
The NT dollar has pared 0.8 percent so far this month, after Japan’s central bank announced on Oct. 31 that it would expand stimulus measures to prop up a weaker-than-expected economy.
Japan’s quantitative easing has not achieved the intended effect, Perng said, given the lackluster exports and stock market, while consumer spending continues to decline.
Japanese lenders have increased lending only minimally in the wake of the monetary easing, and the bulk of newly printed money is flowing back to Japan’s central bank, reflecting reluctance on the part of companies and consumers to borrow, Perng said.
A volatile yen is unfavorable for financial stability in the region, as trade rivals, noticeably South Korea, have no choice but to join the depreciation campaign to help their exports stay competitive, a currency trader told the Taipei Times by telephone.
“Like a double-edged blade, a weak currency helps win export orders, but does so at the cost of raising import costs,” the trader said, speaking on condition of anonymity.
Trade-reliant countries like Taiwan and Japan should think twice when implementing currency policy, or importers and consumers could suffer heavier financial burdens, he said.
Perng declined to speculate on the yen’s value and said the public should exercise prudence in investing in the currency, after reports of increased investment in the yen in the past week.
State-run Bank of Taiwan (臺灣銀行) and Mega International Commercial Bank (兆豐銀行) have sufficient yen stock to meet demand, but investors have to shoulder the consequences of all investment decisions, he said.
Perng also said the free-trade agreement between South Korea and China was both “a crisis and an opportunity” for Taiwan.
With a small and open economy, Taiwan needs membership in regional trade blocs, and the service trade agreement with China is part of the integration effort, he told lawmakers.
Chinese National Federation of Industries secretary-general Tsai Lien-sheng (蔡練生) backed Perng’s view, saying that devaluing the NT dollar was not the right approach to dealing with the impending free-trade agreement between China and South Korea.
Depreciation is a “double-edged sword” that is favorable to exporters, but increases import costs, Tsai said, adding that a balanced perspective is needed to address the problem.
Additional reporting by CNA
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