TOKYO -- Asian governments are increasingly taking action to stop the fall of their currencies that have been battered this year by the mighty U.S. dollar.
The strength of the American economy and its higher-for-longer rates have translated to weaker Asian currencies. Asian policymakers are responding to the dollar's strength in varying degrees, from issuing verbal warnings to raising interest rates. Some are even believed to have intervened by buying their local currency -- a tricky move that could dent a central bank's credibility.
Currency analysts are focused on the U.S. consumer price index for April due Wednesday after the previous month's data caused the yen to tumble.
The most recent piece of significant U.S. economic data, nonfarm payrolls, was weaker than expected, meaning Asian currencies could take a breather. But that alone won't push the dollar lower, according to Fiona Lim, senior currency strategist at Maybank in Singapore.
The upcoming U.S. inflation data "would actually determine the next move for dollar-Asian currencies," she said. "Before it comes out, we'll probably see some kind of consolidation."
Traders are predicting an 8.5% chance of a U.S. rate cut after the next Federal Open Market Committee meeting in June and around 33% for the following meeting in July, according to federal funds rate futures tracker CME FedWatch tool.
The Japanese yen is one of the Asian currencies most affected by the stronger-than-expected U.S. economy.
The Japanese government appears to have intervened twice recently -- on April 29 and May 1 -- to shore up its currency, though official data is yet to be released, analysts said. Before the first suspected intervention, the yen had plummeted past 160 to the dollar, marking its lowest in 34 years.
The yen's decline boils down to the roughly 5 percentage point gap in yields between the U.S. and Japan. The Japanese yen is hovering at the 155 range to the dollar on a 9.4% drop this year, according to Refinitiv.
More dollar selling and yen buying intervention could prove difficult for Tokyo without backing from Washington, according to Shoki Omori, chief desk strategist at Mizuho Securities.
U.S. Treasury Secretary Janet Yellen reportedly said earlier this month that "we would expect these interventions to be rare and consultation to take place," though she did not comment on whether Tokyo had intervened.
A summary of opinions from the Bank of Japan's April monetary policy meeting released last week showed a hawkish tone compared to Gov. Kazuo Ueda's previous public remarks. Some board members saw the possibility of an accelerated rate rise and many said the BOJ should reduce its bond purchases.
But Mizuho Securities' Omori expects that short bets against the yen will continue until the fundamentals change as "there is no silver bullet" to reverse the yen's weakness.
"Carry trade using yen will remain attractive unless the BOJ increases the policy rate quickly and significantly, say 50 basis points in one go, and reduces purchases of short term bonds," he said.
Investors are pricing in a 17.5% chance of a BOJ rate increase by July and 25% by October, according to Mizuho Securities.
In South Korea, forex reserves shrank by nearly $6 billion last month from March, according to Bank of Korea data, partially due to the country's efforts to stop the fall of the won.
The country's central bank said in a statement that the decline in its forex reserves is linked to several factors, including "market stabilization measures such as foreign exchange swap with the National Pension Service," which was put in place in September 2022.
Markets are speculating that the South Korean government helped defend the won's rapid decline, as the currency strengthened against the dollar after a verbal warning last month, according to Moon Da Woon, economist at Korea Investment & Securities in Seoul.
South Korea's Finance Ministry and central bank made the verbal intervention in April, warning of rapid currency movements, just as the won touched 1,400 against the U.S. dollar for the first time in about a year and half.
The won has strengthened since then, recently trading at 1366.50 to the dollar, according to Refinitiv. Korea Investment & Securities' Moon said she expects the won to strengthen to high 1,200 levels by year end.
Over in Indonesia, the central bank unexpectedly raised the benchmark interest rate last month by 25 basis points to 6.25% to beef up its currency.
Bank Indonesia Gov. Perry Warjiyo said at a press conference last week that data suggest no more rate rises are in store for now. He vowed to work on strengthening the currency to below 16,000 to the dollar.
The rupiah has strengthened to around 16,000 to the dollar from almost 16,300 before the surprise rate increase but it has yet to rebound after falling to a four-year low last month.
One of the most stable Asian currencies is the Indian rupee, though it slid to its lowest ever rate to the dollar -- 83.739 -- last month.
The currency has been "heavily managed" by the Reserve Bank of India since about October, trading at a narrow range of about 83, according to Rob Carnell, chief economist for Asia Pacific at ING in Singapore.
Carnell said all central and regional banks in Asia except Malaysia have forex reserves to cover more than six months of imports, which is the threshold of a sufficient reserve.
The Malaysian ringgit is trading at 4.737 to the dollar after dropping to its 26-year low of 4.7965 in February.
The ringgit's weakness is caused by
the dollar's strength, a decline in Malaysia's current account surplus,
and the currency's strong correlation with the Chinese yuan, which is
also weakening.