Recent slide in NT dollar splits market analysts

The New Taiwan dollar rose for the first time in 11 days yesterday, while clashes among government agencies continued over what to do about its recent depreciation.

The NT dollar rose NT$0.043 to close at NT$35.084 against US dollar yesterday -- the first appreciation of the NT dollar in the last 11 trading days.

The NT dollar weakened to NT$35.186 in early trading, down NT$0.059 compared with its previous close of NT$35.127, which was its lowest level in 15 years. Following the recovery of the Japanese yen from ?131.80 to ?130.80 in the morning, the NT dollar moved up from its morning low on turnover of US$669 million.

"Traders engaged in profit-taking yesterday and the Central Bank of China [中央銀行] stepped into the market. The intervention has reversed the depreciation in the past two weeks for the time being," said a senior foreign-exchange dealer at a European bank who declined to be named.

However, the rise in the NT dollar may be only temporary.

"The NT dollar is likely to depreciate again if the Japanese yen depreciates further toward ?140 against the US dollar," the dealer said.

The dealer praised the central bank's move as "correct."

"The Central Bank of China let the NT dollar depreciate over the past two weeks, which I think is a correct policy," the dealer said.

Whether Taiwan's government should continue to allow the NT dollar to depreciate has recently become a point of contention among government agencies. Finance Minister Yen Ching-chang (顏慶章) and Central Bank of China Governor Perng Fai-nang (彭淮南) clashed on the issue earlier this week.

Minister Yen suggested in a meeting held earlier this week that the Central Bank should not let the NT dollar depreciate along with the Japanese yen. But Perng rebuffed the comment saying, "Those who do not understand the market should not speak out loud."

Meanwhile, officials of the Council for Economic Planning and Development (經建會) issued a statement on Thursday warning that excessive depreciation of Taiwan's currency would cause an outbound movement of capital and weaken domestic investments and consumer spending. A "vicious circle" will hamper the development of Taiwan's economy, the officials said.

China and South Korea yesterday strongly criticized the Japanese government for the latest depreciation of the yen.

One analyst said Taiwan could only follow other currencies in the region, rather than resisting the depreciation by itself.

"Taiwan is a small and open economy. We can only follow others in the recent depreciation game [started by yen]," said Huo Teh-ming (霍德明), a finance professor at National Chengchi University.