Asian Central Banks Intervene as Currencies Rise-WSJ 12/30 ; 한국,대만등 아시아 국가 중앙은행의 보이지 않는 외환시장 개입과 환율전쟁,중국의 위완화

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By ARRAN SCOTT, ARIES POON and DITAS LOPEZ

Central banks in South Korea, Malaysia and Thailand are believed to have intervened in foreign-exchange markets Thursday as Asian currencies surged against the dollar on optimism about the region's economic outlook, underscored by strong economic data from China and signals that the yuan will continue to strengthen.

Taiwan, meanwhile, unveiled measures to buttress its banking system against rapid movements in foreign capital, the latest Asian economy to introduce stricter regulations to control the risks posed by such capital flows.

The currency moves were exaggerated by thin trading conditions, with many investors away for year-end holidays. But traders said an upward trend for most Asian currencies appears set to continue, with China's decision to guide the yuan to a modern record against the dollar cementing the bullish sentiment.

"People are making a bet that growth in emerging markets will still be on an uptrend and that currencies will continue with their appreciation," said Lum Choong Kuan, head of fixed-income research at CIMB Group in Kuala Lumpur. "With the debt crisis in Europe and with the U.S. still showing protracted slow growth, investors will have no other place to put their money but here."

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Capital has been flooding into Asia this year, helping finance investments in the fast-growing region. But the influx of foreign money has raised concerns in Asian capitals about the perils of fast-moving capital flows, given the damage the region's economies suffered during the Asian financial crisis of the late 1990s when a previous boom ended suddenly and foreigners rushed for the exits.

Fresh data Thursday from China, the powerhouse of the Asian economy, showed manufacturing growth eased slightly in December but was still at relatively high levels. The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 54.4 in December from 55.3 in November; any reading above 50 indicates expansion.

Hongbin Qu, HSBC's chief economist for China, said that despite the moderation in the PMI, inflation remains Beijing's top policy concern, rather than economic growth. He expects China to take further tightening measures to curb inflation—which hit 5.1% in November—including additional modest interest-rate increases. China's central bank raised interest rates Dec. 25, its second increase in less than three months.

CIMB's Mr. Lum said central banks in emerging markets are looking at tightening monetary policy next year, which means interest-rate differentials between emerging markets and the developed economies of the U.S., Europe and Japan should grow wider. That leaves Asian central banks looking for ways to control inflows of capital chasing higher returns.

In Kuala Lumpur, traders said Malaysia's central bank was suspected of buying dollars to curb a rise in the ringgit, which hit a three-month high Thursday. Bank Negara Malaysia may have bought dollars at around 3.0810-3.0820 ringgit per dollar, dealers said. The dollar was at 3.0846 ringgit in late trade.

Traders in Seoul said they suspected the Bank of Korea entered the market, buying more than $500 million at several intervals between 1,135 and 1,140 won per dollar. The dollar closed at 1,134.80 won, bringing the won's gains against the dollar to 2.6% for the year.

In Bangkok, the dollar was at 30.15 baht in late trade—down from 30.16 baht late Wednesday—with suspected buying by the central bank around that level to limit the downside, two dealers said.

In Taipei, which has been trying to temper gains in the New Taiwan dollar—a favorite among investors seeking exposure to China, given Taiwan's increasingly close economic ties to the mainland—Taiwan's central bank announced new measures to control capital flows.

Starting Saturday, local banks will have to set aside 90% of foreign investors' new deposits as reserves, a leap from the current level of 9.775%.

The central bank also raised its benchmark interest rate by 0.125 percentage point to 1.625%, the third increase this year, as it seeks to normalize lending costs and cool a sizzling property market. Central bank Governor Perng Fai-nan said inflation will likely accelerate next year.

Also Thursday, Taiwan's financial regulator said it will inspect banks' use of foreign funds to determine whether there has been speculative trading in the local currency, after the central bank said it had found "unusual" trading strategies at a small number of banks. "Over the past few days, a small number of authorized foreign-exchange banks have targeted specific times of the day to sell off large quantities of foreign exchange," the central bank said in a statement.

"Our inquiry has revealed that the funding for these transactions originates exclusively from the inward remittance made by certain foreign investors," the bank said, adding that it "asked the authorities concerned to probe into the final beneficiaries behind these foreign investors."

The central bank didn't name the banks in question or give details on the timing of the trades.

It isn't unusual for Asian central banks to intervene in foreign-exchange markets when volatility in their currencies rises. Many have taken regulatory steps in recent months to try to slow capital inflows and make their banking systems more resilient to movements in foreign funds.

Indonesia's central bank said Wednesday that it would increase the amount of reserves commercial banks must hold at the central bank against foreign-currency deposits, among other steps. Also Wednesday, South Korea said it would announce lower ceilings on banks' foreign-exchange forward positions in January.

For many countries, the main consideration has been to make sure their currencies don't rise so much that they hurt export industries. Still, stronger currencies would reduce the cost of imports, tempering inflationary pressures that are on the rise regionally because of surging commodities prices. For that reason, many economists expect authorities to permit their currencies to rise further.

An official at the People's Bank of China echoed that sentiment Thursday, saying that a small, gradual appreciation in the yuan presents more benefits to the Chinese economy than costs.

In an article in the Financial News, a newspaper published by the central bank, Sheng Songcheng, director of the PBOC's Statistics and Analysis Department, said the yuan's rise against the dollar since the exchange rate was made more flexible has had only a small impact on employment and growth. At the same time, Mr. Sheng wrote, the yuan's gradual rise has cut import costs, reduced inflationary pressures and prompted Chinese companies to become more competitive.

The yuan has appreciated 3.4% since June 19, when China pledged to increase the currency's trading flexibility, effectively ending a two-year-long peg to the dollar.

The State Council, China's cabinet, has the final say on major policies such as yuan reform. But Mr. Sheng's article, which featured prominently in the central-bank-run newspaper, may reflect growing confidence that Beijing can allow the yuan to rise further without severe consequences.

The dollar fell to a record low against the yuan Thursday after China's central bank, which tightly controls the currency, set the dollar/yuan parity rate at an all-time low of 6.6229 yuan per dollar, down from Wednesday's rate of 6.6247. It marked the eighth straight session that the central bank has set the parity rate lower.

In the over-the-counter market, the dollar was at 6.6008 yuan late Thursday, down from Wednesday's close of 6.6212 yuan. The dollar traded Thursday between 6.6000 yuan—its lowest intraday level since the yuan began regularly trading in 1994—and 6.6232.

The impact of yuan demand from bank customers was exaggerated by the thin year-end trading, one Shanghai-based trader at a local bank said.

"The market is rather one-sided right now," he said. "The yuan's gain today is definitely bigger than what people had anticipated."

Elsewhere, the U.S. currency also fell against its major rivals in Asian trading, as U.S. Treasury-bond yields declined overnight following strong demand at a seven-year auction, again exaggerated by a thin market. The Australian dollar surged to a post-float high of $1.0197 before pulling back.

Many participants "dumped quite a few [U.S.] dollars," said Satoshi Tate, senior vice president of the foreign-exchange division at Mizuho Corporate Bank.

—Joy Shaw in Shanghai, Min-Jeong Lee in Seoul and Ankur Relia in Kuala Lumpur contributed to this article.

Write to Arran Scott at arran.scott@dowjones.com, Aries Poon at aries.poon@dowjones.com and Ditas Lopez at ditas.lopez@dowjones.com