Strong Singapore, Hong Kong, Malaysia currencies help travellers cash in during trips to Japan, South Korea

Tourists from Singapore, Hong Kong, and Malaysia dizzy from post-Covid travel will see their money go further during their travels, as their currencies are some of the strongest in the region.

The weak yen will also benefit the throng of tourists flocking to Japan since the nation opened up late last year, many of whom have come from Singapore and Hong Kong.

A further gap between the strengths of their currencies will only increase the number of these tourists in Japan, Capital Economics senior economist Lloyd Chan said.

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"The relatively weaker yen and the Korean won will make Japan and South Korea attractive places for travellers from Singapore and Hong Kong," he said.

According to recent analysis by Oxford Economics, Chan said the South Korean won had been the worst-performing Asian currency, weakening almost 5 per cent versus the dollar in the year to the end of March. In the 2022 calendar year, the won fell 6.9 per cent.

"The won will remain Asia's worst-performing currency, given its sensitivity to the global trade and semiconductor cycles, which have trended lower," Chan said.

The same could be said for the Taiwanese dollar, although the island's "sizeable" trade surplus could cushion external blows to its economy, thereby protecting the dollar better than the won, Chan said.

The Japanese yen, South Korean won and Taiwanese dollar have all fallen against the US dollar in the past year as their economies slowed amid decreasing demand for semiconductor and electronics, and looser monetary policies against more aggressive Federal Reserve rate hikes, economists said.

The yen, won and Taiwanese dollar are expected to fall this year. According to Oxford Economics, the three currencies fell between four and six per cent in the 12 months to the end of April.

Capital Economics also forecast further declines for the won and Taiwan dollar, but said it expected the Philippine peso to tumble the most by the end of the year.

The country's current account deficit - importing more than it is exporting - makes the peso "vulnerable to shifts in global risk appetite", Capital Economics economists Gareth Leather and Shivaan Tandon said in a recent note.

The Japanese yen has performed badly since the start of 2022. Once a safe-haven currency, the yen fell to 150 to the dollar, a level not seen in over 30 years. Before the pandemic hit, the yen usually hovered around the 110 mark.

The weakness of the Japanese economy coupled with low inflation means the Bank of Japan has been reluctant to raise interest rates to keep up with aggressive rate increases in other economies such as the United States.

This forces more demand for US dollars, and correspondingly less for the yen, lowering the value of the latter.

Other currencies that have fallen against the US dollar include the Australian dollar, Indian rupee and the Chinese yuan. The Australian dollar has fallen 7.5 per cent in the year ending April, Oxford Economics said.

Despite such weaknesses, most Asian currencies have performed well when compared to others globally.

Asian currencies had benefited from China's reopening, a general slowing in the Federal Reserve's rate hikes, compounded by the market expectations of a Fed rate cut in the second half of the year to shield against the banking crisis, Chan said.

The Singapore dollar was the strongest currency in the region, holding its ground against the US dollar and rising 3.6 per cent over the year to the end of April, according to Oxford Economics.

It was the only Asia-Pacific currency to appreciate against the US dollar in the past year, although DBS Group Research was cautious about the Singapore dollar's outlook due to the "deeper-than-expected contraction" in the city state's economy in the first quarter.

The Hong Kong dollar has been largely flat against the US dollar in the past year. Chan said there was also optimism about the Thai baht, which would benefit from recovering tourism.

There are however some dark clouds ahead, Capital Economics' Leather and Tandon said.

They are expecting the dollar to rebound later in the year which means other Asian currencies may weaken against it.

"The Fed's aggressive tightening cycle is likely to tip the US economy into recession in the second and third quarters of this year. The dollar has strengthened during all recessions but one since 1973," they said.

When recessions occur, demand for "safe-haven" currencies such as the US dollar rises.

This article originally appeared on the South China Morning Post (SCMP).

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