Asian Stocks Plummet as Yuan Rises

The Chinese yuan against the U.S. dollar hit eight yuan on May 15.

The break of ‘the level of eight yuan to the dollar’ has been the first time since 12 years ago. The break means the dollar is getting weaker internationally.

Influenced by the weak dollar and the decrease in the New York stock market, stock markets in Asian countries, including South Korea, saw a sharp decrease.

The People’s Bank of China, China’s central bank, announced the standard exchange rate for trade stood at 7.9982 yuan to the dollar. The yuan-dollar rate has been maintained at eight yuan to the dollar since the Chinese government adjusted the rate to 8.7 yuan in January 1994 in its exchange reform.

Local economists forecast that the appreciation of the yuan will continue as the future yuan-dollar rate traded outside China fell to 7.7-7.8 yuan.

On the same day, the yen-dollar rate fell to 109.61 yen to the dollar, breaking the 110 yen level.

Roh Sang-chil of Kookmin Bank said, “It is widely known that Asian currencies should be appreciated for the U.S. to resolve the issue of the huge trade deficit. So, the appreciation has been already expected.”

But, on the same day, the won-dollar rate went the opposite way by rising 11.0 won (meaning the value of won depreciated) from the previous day to 943.7 won to the dollar. The won-yen rate also rose to 860.79 won to 100 yen.

Meanwhile, the major stock markets in Asia were weakened.

The KOSPI closed at 1,413.98 after falling by 31.22 points (2.16 percent), and the KOSDAQ closed at 675.30 after falling 10.71 points (1.56 percent). The KOSPI hit a record high on May 11 but fell more than 50 points two days later.

The Nikkei fell 114.87 points (0.69 percent) to close at 16,486.91 yen, and the TAIEX closed at 7,176.35, 102.61 points (1.41 percent) down from the previous day.

Kim Sung-joo, an analyst of Daewoo Securities, said, “If the price index of the U.S. schedule to be released soon is higher than expected, the world’s stock prices would decrease further, influenced by the concern of an additional rise in U.S. interest rates.”

Jong-Dae Ha Kyung-Joon Chung orionha@donga.com news91@donga.com