Jumping on the rate cut bandwagon and keeping up with Australia this week was South Korea. It seems as if more emerging economies do not want to be left stuck behind their own curves now that Abenomics is well in hand. Up until now, stealth intervention by the Bank of Korea was the name of the game and seemed to be having a limited impact. After wrong footing markets with no change to its +2.75% policy rate last month, BoK finally pulled the trigger this week and delivered a -25bps rate cut.
Alongside the central bankers' predictable rhetoric of subdued inflation and weaker industrial production data, the yen's recent weakness has clearly weighed on the mind of BoK Governor Kim Choong-soo. While unacknowledged, the RBA's surprise overnight cash rate cut midweek to a record low of +2.75% may have also factored into Korean policy makers decision-making. Up until now, and in a global world deprived of decent capital returns, both of these countries have been a fund manager's favorite for yield pick-up.
Even the Bank of Thailand's (BoT) Governor Prasarn Trairatvorakul is turning dovish and is shifting policy rhetoric toward cuts. Until now, tension between the Thai finance ministry and the central bank over the THB strength has been on high alert. However, the recent rift with the BoT and fears of foreign investment curbs are beginning to take its toll on the THB bulls, now that the central bank is possibly considering a minimum holding period for foreign investors in Thai bonds. The THB has since lost half of its year-to-date gains (+4%) despite strength in other AXJ (Asia ex-Japan) currencies.
It seems more and more that a weak JPY and a slow global recovery is posing risks to Korea's economy and reason enough for the BoK to closely monitoring the forex market, similar to other emerging economies. This is the new norm for APAC economies now that Japan has free rein to weaken its own currency.