Asia’s currencies are on a broad losing streak against the dollar, and governments from Tokyo to Jakarta are pushing back, according to a report by The Wall Street Journal on June 14.
Japan has burned through more than $70 billion defending the yen this year, the Journal reported, citing finance-ministry officials who have warned investors not to test their resolve to do more. Indonesia’s central bank jacked up interest rates for the second time in three weeks at an emergency meeting Tuesday, according to the report, hoping to stem capital outflows and put a floor under the rupiah, which has fallen 7% against the dollar this year.
In South Korea, authorities are stepping up scrutiny of foreign-exchange trading to tackle what they called excessive speculation in the won, which has slid more than 5% against the dollar since the start of the year. The decline has come despite an epic, AI-fueled export boom for Korean memory chips and other high-tech products.
Weak currencies benefit Asian exporters and American tourists, the Journal noted, but they are a major source of pain for importers and consumers. That pain is amplified by higher energy prices caused by the closure of the Strait of Hormuz following the U.S. and Israel’s attack on Iran in February, the report said. Asian countries such as Japan and South Korea rely on imports for 80% to 90% of their energy needs, and much of that supply comes from the Middle East. Oil is typically priced in dollars, so a higher import bill tends to weaken the currencies of big importers.
Higher energy costs also add to strains on government budgets and boost inflation, further pressuring exchange rates. The Thai baht is down about 4% against the dollar this year, and the Indonesian rupiah is down 7%, the Journal reported. Central banks are under pressure to raise rates to tame price growth and bolster their currencies.
The closure of the strait is not the whole story, Paul Cavey, who runs East Asia Econ, a consulting firm that provides data and analysis on the region’s economies, told the Journal. “Asian currencies were weak even before that,” he said.
The report attributed part of the pressure to U.S. bond yields, which have been rising as investors bet on quicker growth, faster inflation and big budget deficits under the Trump administration. The yield gap between U.S. government bonds and Asian government bonds draws capital to the U.S. in search of higher returns, the Journal reported. A strong U.S. jobs report earlier in June led traders to increase bets that new Federal Reserve Chairman Kevin Warsh will be raising rates by the end of the year, the paper noted.
Despite the currency weakness, several Asian economies are enjoying booming exports, driven by ravenous U.S. demand for memory chips, fiber-optic cables and other high-tech products to fuel the data-center build-out for artificial intelligence. South Korea, Taiwan and Japan have all seen bumper shipments. The gold rush is one reason Asian economies have not been hit harder by the energy squeeze, the Journal reported.
Ordinarily, booming exports would start to drive currencies higher as the earnings flow home. But in South Korea, the report explained, Koreans themselves have been huge investors in U.S. tech stocks, and more recently foreign investors have added to the outflow by selling their Korean holdings after booking gains. The result is a falling currency in the midst of an export boom—a pattern that economists called unusual.
“I have rarely seen this in my career as an economist,” Frederic Neumann, chief Asia economist at HSBC, told the Journal.