Many Asian currencies have weakened this year — most notably the yuan and the yen (tho not this week). But there is one key difference between 2023 and much of 2022 — emerging Asian countries are NOT running down their reserves to support their currencies.
this is perhaps easier to see in a chart showing cumulative fx sales in emerging Asia from the start of 2022 .
Part of this is simple because depreciation pressure has been concentrated in Asia’s two biggest economies (China and Japan) which have monetary policies at odds with the US (and the EA) — and thus the downward pressure hasn’t been generalized (yet).
And with lower oil prices emerging Asian countries have less reason to resist a weaker currency as well – But the bottom line is clear: an index of exchange market pressure (which combines fx moves and reserve sales) would show much less generalized pressure in 23 than 22.
But a sustained downdraft in China’s currency (one that moves the yuan below its Trump trade war lows) still would cause difficulties throughout Asia. I worry about a China that resists appreciation with purchases and resists depreciation primarily through signals.
