Peso slips on fresh North Korea threat

MANILA, Philippines -  The peso closed to its weakest level this year on Thursday after investors shunned risky assets due to tensions in North Korea and after Japan announced it is ramping up asset purchases to fight deflation.

The local currency ended trading at 41.15 to a dollar, plummeting by 24.5 centavos from its Wednesday’s close of 40.905. Dollars traded amounted to $1.12 billion, up from $920.2 million the previous day.

This was the second time the unit closed at the 41 to a dollar level this year after its 41.07 close last March 26.

“It’s mostly driven by external developments, primarily geopolitical risks and tensions in North Korea,” said Emilio Neri Jr., economist at Bank of the Philippine Islands, in a phone interview.

Tensions between North Korea, South Korea and the United States heated up on Thursday, after the hermit kingdom issued fresh statements threatening a nuclear attack to the US mainland and its allies.

A spokesman for Democratic Republic of Korea was quoted as saying that the “moment of explosion is approaching fast.” This was followed by reports saying the country has banned South Korean workers from entering the joint industrial Kaesong complex.

Besides concerns about North Korea, Japan’s announcement that it is doubling asset purchases to fight deflation and revive the world’s third largest economy also caused regional currencies to weaken.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said the Bank of Japan’s decision to double purchases to 7 trillion yen from 3.4 trillion yen— under its new head Haruhiko Kuroda— reverberated across Asia.

“The yen approached the 95.50 versus the dollar at around noon and because of that movement, other currencies in the region also moved versus the dollar,” Ravelas said in a separate phone interview.

For Friday, both Neri and Ravelas predicted the peso could remain at the 41 to a dollar level with the latter predicting “more room to depreciate.” Ravelas projected the peso to end the year at 42.10 against the greenback.

The peso, Asia’s second best performing currency last year, appreciated by 0.6 percent in the first three months of the year, according to central bank data. It has traded at 40 to a dollar  level for most of the year so far.

Neri said the Bangko Sentral ng Pilipinas (BSP) may “tolerate” some weakening of the peso, which would benefit exporters and families of overseas Filipinos receiving remittances.

However, he said the BSP will be watchful of the peso’s volatility, making sure its movements are contained at less than 50 centavos. On Thursday, the peso traded between 40.95 and 41.175, or within a 22.5-centavo range.

“The BSP will keep its stance of avoiding too much volatility,” Neri said.