Thu, Jun 06, 2024 page12

• Taiwan’s forex reserves last month reach record

  • By Crystal Hsu / Staff reporter, with Bloomberg
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  Taiwan’s foreign exchange reserves last month increased US$5.78 billion to a record US$572.8 billion, as investment returns and value gains outpaced losses linked to interventions to slow the local currency’s appreciation, the central bank said yesterday.

  The pickup snapped five straight months of declines, helped by the US dollar’s retreat against other major reserve currencies, Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) told a news conference in Taipei.

  The vast reserves allowed the central bank to collect significant quarterly interest income in August and November last year, as well as February and last month, Tsai said.

  

  US dollar and euro banknotes are pictured in an arranged photograph taken on July 17, 2022.

  Photo: Reuters

  At the same time, the greenback’s 1.46 percent fall helped boost the euro, the British pound, the Australian dollar, the Canadian dollar and other reserve currencies, he said.

  However, the central bank incurred some losses due to its efforts to mitigate the effect of massive foreign fund inflows, which drastically bolstered the local currency on May 15 and 16, and repeatedly sent the TAIEX to record highs, Tsai said.

  Last month, capital inflows totaled about US$6 billion after remittances abroad of capital gains and cash dividends, he said.

  Financial Supervisory Commission data showed an unprecedented US$11.72 billion for last month as foreign institutional players sought to take advantage of an artificial intelligence (AI) frenzy.

  Foreign fund inflows totaled US$25.64 billion for the year to Friday last week, suggesting keenness over AI shares, the commission said.

  The dividend season might bring more fund inflows and profit-taking among foreign investors, the central bank said.

  Most Taiwanese companies distribute cash and stock dividends from June to August from the previous year’s earnings.

  Separately, the central bank said the weak yen is having only a limited impact on Taiwan’s economy, with the New Taiwan dollar experiencing less volatility than most Asian currencies, according to a report to lawmakers seen by Bloomberg News.

  Taiwan’s exports and economy are mainly impacted by the global economy, though traditional industries such as machinery tools will likely be affected by the yen falling, according to the report, which was filed a day before Central Bank Governor Yang Chin-long (楊金龍) appears before the legislature’s Finance Committee to speak on the impact of the Japanese currency depreciating.

  The planned discussion underscores the growing concern in Taiwan that the yen may be undercutting the island’s competitiveness as an exporter, particularly of machine tools. Japan’s currency has dropped 4 percent against the NT dollar this year and is down more than 10 percent since the end of 2022.

  Taiwan’s April exports of precision instruments fell 33.3 percent from a year earlier, while electronic parts dropped 17.7 percent and machinery exports slid 13.1 percent. Still, an artificial intelligence-fueled tech boom has supported overall outbound shipments from the island, a chip-exporting powerhouse.

  “It’s necessary to maintain the relative stability of the Taiwan dollar” even though its volatility is less than that of regional peers such as the Japanese yen and South Korean won, the report said. “It benefits product pricing and the operation of manufacturers” and supports domestic financial stability and economic growth, it added.

  Companies that invest directly in Japan could benefit from a weaker yen, the report added, without naming any firms. Taiwan Semiconductor Manufacturing Co (台積電) has been expanding in Japan.

  The yen is the worst-performing Asian currency this year, having slumped some 9 percent against the US dollar. That’s even though Japan spent a record 9.8 trillion yen (US$62.2 billion) in just weeks to prop up the currency after it fell to a 34-year low against the greenback.
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