US dollar gains have picked up pace against all Asian currencies this year.
Low interest rates keep the yen weak against currencies of its major trading partners, including Singapore, where rates are much higher and economic growth is resilient.may have cost some currency traders dearly, but the Japanese currency is still near its multi-decade lows while the fundamental reasons for its weakness have far from disappeared.
Although the Japanese authorities have made no comments, Bank of Japan data released a day after the April 29 intervention showed that it sold US$35 billion to buy 5.5 trillion yen and, in the process, lifted the currency from a 34-year low of about 160 to a US dollar. Still, it was reasonable for the Japanese Finance Ministry to intervene. There was certainly a sense of crisis creeping into the market as the yen slide gathered pace in the past few weeks.
Bloomberg News noted on April 29 there is mounting speculation in financial markets that China may devalue the renminbi – possibly by as much as 20 per cent – to stimulate its stagnant economy. Given that Singapore imports almost everything it consumes, the Monetary Authority of Singapore since 1981 has conducted monetary policy by managing the Singapore dollar exchange rate. That is unlike most central banks worldwide, which use domestic interest rates as their main policy tool to control inflation.
The trade-weighted exchange rate is not lost to other central banks, either, even if it is not their preferred policy tool.
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