SINGAPORE From South Korea to Indonesia and India, monetary authorities are preparing to let their currencies weaken as a falling Japanese yen makes their economies uncompetitive, and drags them into what some policymakers are calling a “currency war”.
The Indonesian rupiah, Malaysian ringgit, Thai baht and other currencies had been sliding gradually against a broadly strong U.S. dollar this year.
They hit fresh lows this week, their sudden declines coming after the yen dropped to a 13-year low on Friday. The region’s normally interventionist authorities, however, kept their feet off the brakes.
An adviser to India’s finance minister said the country’s export growth was flailing not just because of weak global demand but also as a result of the currency-weakening monetary stimulus policies pursued in major economies such as Japan and the euro zone.
“Call it competitive devaluation, currency war or something else, the fact is such policies are having and will have implications for trading partners,” the adviser said. “We cannot afford to let our currency become less competitive.”
India’s rupee INR=IN has been an outperformer as most other currencies ceded ground to a dollar that has been pushed up by expectations that U.S. interest rates will rise at some point this year.
Indonesia’s rupiah (IDR=> is down nearly 8 percent against the dollar so far in 2015, eclipsing a 7 percent decline in Malaysia’s ringgit MYR=.
While the yen has lost 16 percent in 9 months and the euro has fallen 18 percent since early May 2014, Asian currencies have depreciated far less, making their exports less cheap in international markets.
Theoretically Asian currencies ought to be weaker as, in general, inflation levels in the region are higher than those of major trading partners, most of which are dicing with deflation.
Yet, data from the Bank for International Settlements (BIS) shows China’s yuan was 30 percent higher in April in trade and inflation-adjusted terms than in 2010. Korea’s won was 15 percent more expensive than in 2010, while the yen was 28 percent weaker.
Korea’s exports have fallen every month this year while Chinese exporters have seen both their sales and profits fall.
“There is a risk of currency war where the dollar tends to strengthen, so other countries will be affected,” Indonesian central bank Governor Agus Martowardojo told reporters on Monday.