Credit Suisse On Asia FX And Yen Weakness

Credit Suisse issued an Asia FX report Thursday with a focus on the Japanese yen.

Analysts Ray Farris and Trang Thuy Le commented that their “empirical work suggests JPY has become less important for EM Asia FX as the CNY became more important.

“Nonetheless, the JPY remains a key driver for the KRW, TWD, and affects the SGD via its basket. We see some impact on the MYR.”

Farris adjusted forecasts as follows:

“We raise our USDKRW 3m and 12m forecasts to 1135 and 1155 respectively and remain bearish on the KRW.

• We lift our USDTWD 3m and 12m forecasts to 31.0 and 31.3 and are bearish TWD.
• We raise our USDMYR 3m and 12m forecasts to 3.38 and 3.42 respectively and remain bearish MYR.
• As a technical adjustment, we raise our USDSGD 3m and 12m forecasts to 1.305 and 1.310 respectively and are neutral the SGD .”

The report concluded that “It will be important to look for signs of increased JPY impact on the region as it depreciates. One reason is that slowing in China's economic growth means that China is less of an overwhelming support for the region than it was in the 2009-2013 period. This potentially makes some exporters in the region more exposed to marginal increases in Japanese competitiveness.

In this regard, we note that Japan's real exchange rate has already fallen to new lows and should fall about 3 percent more on our forecasts. Our equity analysts note that so far Japanese producers in sectors such as steel, autos, and technology have chosen to maintain international prices to expand yen denominated margins rather than cutting prices to pursue increased global market share. However this behavior could change as yen depreciation extends.”