(Bloomberg) — The rally in the yen is set to bolster a number of other Asian currencies based on their relatively high correlations, according to Citigroup Inc. and Barclays Bank Plc.
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The South Korean won, Singapore dollar and Thai baht are set to benefit the most from gains in their Japanese counterpart, strategists at the two banks said in separate client notes. The yen has rallied over the past week as Japan and the US have intervened in the foreign-exchange market to prop up the currency after it slid to the lowest since the 1980s.
“Just like how a weaker Japanese yen has a tendency to weaken Asian currencies, we view the opposite should be true as well,” Citigroup strategists including Rohit Garg and Gordon Goh in Singapore wrote in a note published Sunday. “Yen appreciation should also have an impact towards strengthening Asian currencies.”
The yen has jumped more than 4% versus the dollar over the three days through Monday, as Japan and the US worked together to support the currency. The won, baht and Philippine peso have each appreciated at least 0.7% over the period, while the Bloomberg Asia Dollar Index, which tracks a basket of Asian currencies, excluding the yen, has gained 0.5%.
The won, Singapore dollar and Taiwan dollar have had the highest correlation to the yen over the past year, while the Indian rupee and Indonesian rupiah have had the lowest, the Citigroup strategists wrote in their note.
Further Gains
The won is the most sensitive Asian currency to the yen’s moves, which should reinforce its earlier gains, according to Barclays.
“Given the potentially coordinated nature of the recent intervention in USD/JPY, the spillover into Asian FX could be larger than implied by historical betas alone,” Barclays strategists including Mitul Kotecha in Singapore wrote in their note released Monday.
“This may reinforce gains in yen-sensitive currencies in the near term, particularly against the backdrop of a broader US dollar pullback” following the relatively dovish press conference from Federal Reserve Chair Kevin Warsh last week, they said.
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