Asian Currencies Weaken as Japan Slump Reignites Recession Woes

(Bloomberg) -- Asian currencies weakened, led by Indonesia’s rupiah, after a government report showed Japan’s economy shrank by a record last quarter, reigniting concern that a slump in consumer spending will prolong the global recession.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active regional currencies, ended a two-day gain on speculation investors will cut holdings of emerging-market assets in favor of safety in the dollar and yen. A sentiment index issued today in Australia showed pessimists outnumbered optimists for a 16th month in May, while the U.S. Commerce Department reported yesterday that housing starts unexpectedly fell.

“The tone of recent data has turned more cautious,” said Patrick Bennett, Hong Kong-based Asia foreign-exchange strategist at Societe Generale SA, France’s third-largest bank. A “correction” in regional currencies is “appropriate” following recent gains, he said.

The rupiah depreciated 1.4 percent, the biggest drop since March 25, to 10,370 per dollar as of 9:45 a.m. in Jakarta. South Korea’s won fell 0.2 percent to 1,252.30 and the Philippine peso dropped 0.3 percent to 47.42. The Asia Dollar Index declined 0.2 percent to 107.71.

Gross domestic product in Japan contracted 15.2 percent in the three months ended March 31, following a 14.4 percent decline in the previous quarter, the Cabinet Office said. Westpac Banking Corp. and Melbourne Institute said their consumer sentiment index fell 4.3 percent from April to 88.8 points, while the U.S. Commerce Department reported housing starts slid 13 percent last month to an annual rate of 458,000.

Export Demand

The yen gained against the euro after Japan’s GDP damped optimism the worst of the recession is over, spurring safe-haven demand. The yen rose to 129.87 per euro in Tokyo from 130.81 yesterday in New York. The dollar was at 95.58 yen from 95.97 yen.

Malaysia’s ringgit snapped a three-day gain and dropped 0.4 percent to 3.5490 per dollar in Kuala Lumpur, according to data compiled by Bloomberg.

Singapore, the U.S. and Japan were Malaysia’s three-biggest export markets in 2008, accounting for a combined 38 percent of shipments. Singapore’s overseas sales fell for a 12th month in April, easing 19.2 percent, the government said on May 18.

“Some of the rally in Asian currencies looks overdone in the short term,” said Mitul Kotecha, head of global foreign- exchange strategy at Calyon in Hong Kong. “Yesterday’s U.S. housing start numbers dampened sentiment. There’s a risk of consolidation before we see stronger moves going into the second half of the year.”

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