The South Korean won led a rebound in Asian emerging currencies on Friday as an agreement by the Group of Seven to stem the yen's strength prompted investors to reduce dollar holdings, but investors were sceptical that regional currencies could extend their gains.
The Bank of Japan likely poured about 2 trillion yen ($25 billion) into currency markets to push down the yen, Jiji news agency quoted a market sources as saying, after the G7 agreed to jointly and immediately intervene against the Japanese currency's surge to a record high and calm global markets.
The yen's sharp rise had threatened to add further pressure on the fragile Japanese economy after the country was hit by a violent earthquake and tsunami last week, triggering a crisis at a nuclear power plant. Still, currency investors remained cautious as workers struggled to cool several overheating reactors north of Tokyo.
"Everything depends on the nuclear situation in Japan. If that does not stabilise soon, then this intervention will be for nothing," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore. United Overseas Bank economist Ho Woei Chen in Singapore said the intervention might even prompt other Asian central bank to buy dollars to check gains in their currencies. Reflecting that view, the Bank of Thailand was spotted buying dollars and there was talk of dollar-buying intervention by the Philippines' central bank, dealers said.
The won rose against the dollar as investors cleared dollar-long positions and on demand from exporters such as shipbuilders for settlements. The South Korean unit also jumped more than 4.5 percent as dealers said some offshore players appeared to clear yen-long positions to stop losses.
The peso tracked other Asian currencies, with investors also covering dollar-short positions around 43.70 per dollar before the weekend. Dealers said there was a talk of Bangko Sentral Pilipinas' dollar-buying to curb further strength in the local currency around the level. The Singapore dollar strengthened, with investors gunning to test 1.2700 per dollar, a level which Singapore's foreign exchange authorities had been spotted defending previously.