Strong Singapore, Hong Kong, Malaysia currencies help travellers cash in during trips to Japan, South Korea
- The weak yen would benefit tourists flocking to Japan since the nation opened up late last year, many of whom have come from Singapore and Hong Kong
- Most Asian currencies have benefited from China’s reopening, but the yen and South Korean won have fallen against the US dollar as economies slow
A further gap between the strengths of their currencies will only increase the number of these tourists in Japan, Capital Economics senior economist Lloyd Chan said.
According to recent analysis by Oxford Economics, Chan said the South Korean won had been the worst-performing Asian currency, weakening almost 5 per cent versus the dollar in the year to the end of March. In the 2022 calendar year, the won fell 6.9 per cent.
“The won will remain Asia’s worst-performing currency, given its sensitivity to the global trade and semiconductor cycles, which have trended lower,” Chan said.
The same could be said for the Taiwanese dollar, although the island’s “sizeable” trade surplus could cushion external blows to its economy, thereby protecting the dollar better than the won, Chan said.
The Japanese yen, South Korean won and Taiwanese dollar have all fallen against the US dollar in the past year as their economies slowed amid decreasing demand for semiconductor and electronics, and looser monetary policies against more aggressive Federal Reserve rate hikes, economists said.
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The yen, won and Taiwanese dollar are expected to fall this year. According to Oxford Economics, the three currencies fell between four and six per cent in the 12 months to the end of April.
Capital Economics also forecast further declines for the won and Taiwan dollar, but said it expected the Philippine peso to tumble the most by the end of the year.
The country’s current account deficit – importing more than it is exporting – makes the peso “vulnerable to shifts in global risk appetite”, Capital Economics economists Gareth Leather and Shivaan Tandon said in a recent note.
The Japanese yen has performed badly since the start of 2022. Once a safe-haven currency, the yen fell to 150 to the dollar, a level not seen in over 30 years. Before the pandemic hit, the yen usually hovered around the 110 mark.
This forces more demand for US dollars, and correspondingly less for the yen, lowering the value of the latter.
Despite such weaknesses, most Asian currencies have performed well when compared to others globally.
The Singapore dollar was the strongest currency in the region, holding its ground against the US dollar and rising 3.6 per cent over the year to the end of April, according to Oxford Economics.
It was the only Asia-Pacific currency to appreciate against the US dollar in the past year, although DBS Group Research was cautious about the Singapore dollar’s outlook due to the “deeper-than-expected contraction” in the city state’s economy in the first quarter.
The Hong Kong dollar has been largely flat against the US dollar in the past year. Chan said there was also optimism about the Thai baht, which would benefit from recovering tourism.
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There are however some dark clouds ahead, Capital Economics’ Leather and Tandon said.
They are expecting the dollar to rebound later in the year which means other Asian currencies may weaken against it.
“The Fed’s aggressive tightening cycle is likely to tip the US economy into recession in the second and third quarters of this year. The dollar has strengthened during all recessions but one since 1973,” they said.
When recessions occur, demand for “safe-haven” currencies such as the US dollar rises.