Yen dips on likely flight of investors

ASIAN CURRENCIES ROUND-UP

The yen declined against all 16 of the world's most active currencies on speculation that Japanese investors will put their winter bonuses into higher-yielding assets overseas.

The currency dropped the most versus the New Zealand dollar as finance companies in Japan prepare to sell the equivalent of $2.6 billion in mutual funds focussed on offshore assets this week, according to data compiled by Bloomberg.

The dollar fell against the euro as the Federal Reserve's quarter-percentage point interest-rate cut to 4.25 per cent failed to ease concern that the US economy is headed for recession.

"Winter bonuses will be paid out and retail investors may buy high-yielding assets,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank, Germany's second largest bank. "This should support foreign currencies against the yen.''

The yen weakened to 163.06 a euro as of 9:46 am in London, from 162.14 late in New York yesterday, when it rose 1.3 per cent. It also slipped to 111.05 against the dollar from 110.66.

Yuan rises to the highest since end of peg
The yuan rose to the highest since China ended a fixed exchange rate to the dollar in 2005 after the US Treasury Secretary Henry Paulson reiterated calls for faster appreciation during talks with Chinese officials.

The advance took the yuan's gain this quarter to 1.8 per cent after retail sales increased the most in at least eight years, adding to speculation the central bank will keep raising the interest rates to cool the economy. China must let the yuan rise faster, given "mounting inflation, growing asset bubbles and possible overheating,'' Paulson said today.

"We are getting closer to a change in policy for the yuan,'' said Magnus Prim, chief foreign-exchange strategist at Skandinaviska Enskilda Banken in Singapore. "Moving quicker on the currency front is a win-win situation for China. This visit by Paulson might move the development a bit quicker.''

The currency rose 0.05 per cent to 7.3770 a dollar as of the 5:30 pm close in Shanghai from 7.3805 late yesterday, according to the China Foreign Exchange Trade System. It touched 7.3670, the highest since the link to the US currency was scrapped in July 2005 and completed a fourth day of gains.

People's Bank of China Governor Zhou Xiaochuan said this week that China will use exchange-rate policy to stem economic growth as inflation reached the highest in almost 11 years and the trade surplus rose to the third biggest monthly total. The economy is expanding at the fastest pace among the world's 20 largest economies.

Won, rupiah fall as fed rate cut disappoints
South Korea's won and Indonesia's rupiah fell against the dollar on speculation the Federal Reserve's interest-rate cut yesterday was too small to avert a recession that will curb the demand for Asian assets.

The won declined for a third day as Asian stock markets tumbled after the Fed lowered its benchmark rate by a quarter point to 4.25 per cent, disappointing investors who expected a larger reduction. The selling of Korean stocks by overseas investors exceeded purchases by the most since November 22, according to stock exchange data.

"We're seeing a bit of a pullback in Asian currencies today, with the dollar a touch higher,'' said Steven Chang, vice president for global markets at State Street Bank & Trust in Hong Kong. "In the near term, dollar-won will be driven by what's happening with interest rates.''

The won weakened 0.3 per cent to 926.60 a dollar as of the 3 pm end of trading in Seoul, the weakest close since November 29, according to Seoul Money Brokerage Services.

Indonesia's rupiah fell the most in three weeks as the Jakarta composite index of equities slid 0.7 per cent.

"The rupiah will follow the regional stock market downtrend following the Fed decision,'' said Lindawati Susanto, head of currency trading at PT Bank Resona Perdania in Jakarta. "It's a reflection of risk aversion here.''

The currency lost 0.4 per cent to 9,305 a dollar, according to data compiled by Bloomberg. The decline was the biggest since November 21 when crude oil prices rose to a record $99.29 a barrel.