Governments from Brazil to South Korea are stepping up attempts to control their currencies as investors pour a record amount of money into emerging markets.
South Korea will start an audit of lenders handling foreign currency on Oct. 19 to curb volatility caused by capital flows, the finance ministry said in Seoul today. Brazil doubled a tax it charges foreigners on investments in fixed-income securities to 4 percent, Finance Minister Guido Mantega said yesterday. The yen weakened for a second day on speculation the Bank of Japan will discuss curbing exchange-rate moves at a meeting today, having sold $25 billion worth of its own currency last month in the first intervention since 2004.
Policy makers are trying to limit inflows after the Korean won climbed 8 percent in the past three months to the strongest since May and Brazil’s real gained 4.7 percent to a two-year high. Investors have plowed a record $49.4 billion into emerging-market stock funds this year and $39.5 billion into bond funds, EPFR Global data show. Pacific Investment Management Co., which manages more than $1 trillion, raised its holdings in developing-nation bonds to the most since 2008 in April.
“The question remains to what extent can countries with floating exchange rates and open capital accounts prevent real appreciation in a world of massive capital flows,” said Kevin Gallagher, a professor at Boston University, who has authored reports on trade agreements and capital controls for the United Nations. “The evidence shows that it can be done, at least in the short term.”
World Bank President Robert Zoellick said yesterday he sees tensions arising from currency devaluations as nations seek to buoy their economies.
Protect the Won
The won plunged 1.1 percent to 1,134.68 per dollar. Yesterday, it reached 1122.30 per dollar, the strongest level since May 5, according to data compiled by Bloomberg. The Bank of Korea and the Financial Supervisory Service audit will ensure banks are following controls on foreign-currency derivatives imposed in June, the finance ministry said.
“It looks like the market is taking the announcement on foreign-exchange rules as a means to protect the won from volatility,” said Ha Joon Woo, a Seoul-based currency trader from Daegu Bank.
Brazil’s real fell 0.5 percent to 1.6979 per dollar. It touched a two-year high of 1.6735 per dollar on Oct. 1. Finance Minister Guido Mantega warned Sept. 27 of a “currency war” and said his government will buy all “excess dollars” in the market to limit the real’s appreciation. The government will double to 4 percent the tax it charges on foreigners to invest in the nation’s bonds, first introduced in October 2009. Foreigners held a record $9.2 billion of domestic debt in August.
Mantega Tax
Brazil offers real interest rates of 8 percent to 9 percent, said Bill Gross, who manages the world’s biggest bond fund at Newport Beach, California-based Pimco. The won is representative of “strong emerging-market currencies to stand in contrast to the U.S. dollar,” he said in an interview today on Bloomberg Television’s “Surveillance Midday” with Tom Keene.
Japan sold 2.12 trillion yen ($25 billion) in the month through Sept. 28, after the yen strengthened to a 15-year high against the dollar, threatening the nation’s export-led recovery. The central bank may sell yen again today at the conclusion of a two-day meeting on interest rates, said Joseph Capurso, a foreign-exchange strategist at Commonwealth Bank of Australia in Sydney.
“The Bank of Japan could intervene at any time,” Capurso said. “The end of the meeting may be the catalyst for them to resume intervention.”
Weaker Yen
The yen traded at 83.47 to the dollar today, having recovered 2.9 percent from its weakest level after the nation intervened on Sept. 15. Finance Minister Yoshihiko Noda told reporters in Tokyo today he is prepared to explain to Group of Seven counterparts Japan’s reasons for intervening.
The Taiwan dollar strengthened yesterday beyond NT$31 for the first time since August 2008, before erasing most of its gains in late trading because of suspected intervention. The central bank may have sold NT$20 billion ($642 million) or more to curb the currency’s rise, the Economic Daily News reported today, without saying where it got the information.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.
http://jodnet.blogspot.com
South Korea will start an audit of lenders handling foreign currency on Oct. 19 to curb volatility caused by capital flows, the finance ministry said in Seoul today. Brazil doubled a tax it charges foreigners on investments in fixed-income securities to 4 percent, Finance Minister Guido Mantega said yesterday. The yen weakened for a second day on speculation the Bank of Japan will discuss curbing exchange-rate moves at a meeting today, having sold $25 billion worth of its own currency last month in the first intervention since 2004.
Policy makers are trying to limit inflows after the Korean won climbed 8 percent in the past three months to the strongest since May and Brazil’s real gained 4.7 percent to a two-year high. Investors have plowed a record $49.4 billion into emerging-market stock funds this year and $39.5 billion into bond funds, EPFR Global data show. Pacific Investment Management Co., which manages more than $1 trillion, raised its holdings in developing-nation bonds to the most since 2008 in April.
“The question remains to what extent can countries with floating exchange rates and open capital accounts prevent real appreciation in a world of massive capital flows,” said Kevin Gallagher, a professor at Boston University, who has authored reports on trade agreements and capital controls for the United Nations. “The evidence shows that it can be done, at least in the short term.”
World Bank President Robert Zoellick said yesterday he sees tensions arising from currency devaluations as nations seek to buoy their economies.
Protect the Won
The won plunged 1.1 percent to 1,134.68 per dollar. Yesterday, it reached 1122.30 per dollar, the strongest level since May 5, according to data compiled by Bloomberg. The Bank of Korea and the Financial Supervisory Service audit will ensure banks are following controls on foreign-currency derivatives imposed in June, the finance ministry said.
“It looks like the market is taking the announcement on foreign-exchange rules as a means to protect the won from volatility,” said Ha Joon Woo, a Seoul-based currency trader from Daegu Bank.
Brazil’s real fell 0.5 percent to 1.6979 per dollar. It touched a two-year high of 1.6735 per dollar on Oct. 1. Finance Minister Guido Mantega warned Sept. 27 of a “currency war” and said his government will buy all “excess dollars” in the market to limit the real’s appreciation. The government will double to 4 percent the tax it charges on foreigners to invest in the nation’s bonds, first introduced in October 2009. Foreigners held a record $9.2 billion of domestic debt in August.
Mantega Tax
Brazil offers real interest rates of 8 percent to 9 percent, said Bill Gross, who manages the world’s biggest bond fund at Newport Beach, California-based Pimco. The won is representative of “strong emerging-market currencies to stand in contrast to the U.S. dollar,” he said in an interview today on Bloomberg Television’s “Surveillance Midday” with Tom Keene.
Japan sold 2.12 trillion yen ($25 billion) in the month through Sept. 28, after the yen strengthened to a 15-year high against the dollar, threatening the nation’s export-led recovery. The central bank may sell yen again today at the conclusion of a two-day meeting on interest rates, said Joseph Capurso, a foreign-exchange strategist at Commonwealth Bank of Australia in Sydney.
“The Bank of Japan could intervene at any time,” Capurso said. “The end of the meeting may be the catalyst for them to resume intervention.”
Weaker Yen
The yen traded at 83.47 to the dollar today, having recovered 2.9 percent from its weakest level after the nation intervened on Sept. 15. Finance Minister Yoshihiko Noda told reporters in Tokyo today he is prepared to explain to Group of Seven counterparts Japan’s reasons for intervening.
The Taiwan dollar strengthened yesterday beyond NT$31 for the first time since August 2008, before erasing most of its gains in late trading because of suspected intervention. The central bank may have sold NT$20 billion ($642 million) or more to curb the currency’s rise, the Economic Daily News reported today, without saying where it got the information.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.
http://jodnet.blogspot.com
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