The problem is that the yuan and the yen are likely to weaken for the time being. Japanese financial authorities directly intervened in the forex market for the first time in 24 years on the 22nd to defend the yen’s value, but don’t think the market will stop the downward trend. The U.S. Federal Reserve (Fed), which is eager to control prices, recovers dollars by conducting three consecutive “Giant Steps” (0.75%p increase in the benchmark interest rate at a time), as Japan is still maintaining zero interest rates and increasing the supply of yen.
It is also urgent for China to respond to concerns over an economic slowdown caused by the “zero COVID” policy rather than defending the exchange rate. To this end, the People’s Bank of China is fiddling with the card of an additional rate cut after cutting the one-year loan preferential interest rate (LPR) by 0.05 percent for the first time in seven months in August.
Yuan and yen affecting the other Asian currencies
The currencies of countries in the current account deficit, such as the Korean won, the Philippines’ peso, and the Thai baht, will be the most vulnerable, said Tran Thuyre, strategist at Macquarie Capital. Korea’s current account balance in July, announced by the Bank of Korea on the 7th, was in the black of 1.09 billion dollars, but the commodity balance, the core of the current account, was -1.18 billion dollars, the first deficit since April 2012.
Meanwhile, this year’s bailout provided by the International Monetary Fund to the world was the largest ever. According to the Financial Times’ analysis of IMF data, the IMF provided 44 programs to countries around the world by the end of last month this year, totaling $140 billion. This has already exceeded the annual scale of last year, which was the largest ever. FT said, “A sharp hike in key interest rates in major developed countries, including the U.S., has pushed emerging economies into a financial crisis,” adding, “The IMF’s loan capacity may soon reach its limit due to requests from these countries.”