The fall in JPY since 2012 has continued into this year. This has been driven primarily by the Japanese authorities seeking a weaker currency to stimulate the economy – part of the ‘Abenomics’ program of monetary expansion. Pairing the USD/JPY, the yen tumbled 18pc in 2013, the biggest drop since 1979. We see Japanese exporters strengthening during the course of this year which will have a bottom line improvement on Japan’s external balances and supports a call for tactical strength. While the market bias remains towards a continued JPY weakening therefore, a careful eye on this counter-trend emerging would be worthwhile.
Nico Jonckheere, Head of Research at Valbury Asia Futures in Jakarta, observes the People’s Bank of China’s intervention in the currency markets in Q1, seeking to weaken the RMB against the USD. This is not perceived to be a fiscal stimulus, but rather a measure taken to reduce the capital inflows from foreign investors seeking higher-yielding RMB based assets that, ‘as a bonus’, have been strengthening almost continuously during the last few months. These investors have been at least partly responsible for driving the credit growth in China.With concerns rising over the deterioration of China’s growth momentum, increased policy uncertainty, and the unwinding of the carry trades, the recent trend reversal may be set to continue, though the Chinese Policymakers will no doubt have RMB stability as a priority.
The Deputy Governor of the Bank of Indonesia was recently in London to give an economic briefing on the Indonesian economy into and beyond the 2014 election. In an upbeat presentation, he noted that market volatility was much reduced compared to 2013, especially the months immediately after the Fed announcement on planned tapering. Mark Hanney, CEO of Valbury Capital, attended the briefing and comments that the message was generally for more of the same; macroeconomic and financial stability being the key short-term policy aim, with a focus on anchoring inflation and a sustainable current account deficit, with moderate impact on economic growth. Over the medium term the focus remains the progressing of structural reforms in investment, infrastructure and trade to support sustained, balanced and inclusive growth.
The IDR has appreciated 4.6% in 2014 against the USD on the back of these economic fundamentals. Recent data indicate that the rate of inflation is under control, the current account deficit reducing and there is an expectation of increasing foreign capital inflows drawn by strengthening economic growth. Balanced against this is the implicit uncertainty of the upcoming election and general impact of a slowdown in Chinese growth.