Written by Rae Wee and Vidya Ranganathan
Singapore (Reuters) - With the rise of currencies in South Korea, Taiwan and Japan, these economies can also use exchange rate revaluation as carrots in trade negotiations with U.S. President Donald Trump.
While a stronger currency has historically meant competition to these Asian exporters, a revaluation may now be the lowest-cost bargaining chip as their deal terms with the United States are favorable
South Koreans won after discussing monetary policy with U.S. officials on May 5 in Milan. This comes days after talks in the United States and Taiwan triggered an unprecedented 8% surge in the Taiwan dollar.
Meanwhile, the Japanese Treasury Secretary met with U.S. Treasury Secretary Scott Bessent at a G7 meeting in Canada next week to discuss foreign exchange.
Market participants quickly linked these developments to the surprise of China's 90-day trade armistice with the surprise of the United States.
"This Chinese deal is bad news for South Korea, Japan, for anyone waiting in line, because now they need to provide something China manages to avoid," said Alicia Garcia-Herrero, chief economist at Natixis Asia Pacific.
She believes Taiwan may have agreed to revaluate its currency as part of trade negotiations, while China opposes such a demand.
The clock is ticking for Asia exports. Trump's reciprocal tariffs on April 2 ranged from 25% in South Korea to 46% in Vietnam, and were suspended for 90 days, but could be launched on July 8 unless a deal was concluded.
As China and India accelerate negotiations with Trump, China, Japan, South Korea and Taiwan have greater urgency, which have the potential to be separated from the supply chains of semiconductors and automobiles.
China, Japan, South Korea, Singapore, Taiwan and Vietnam are also economies of the U.S. Treasury Department’s “monitoring list” for monetary practices – Trump’s team can be used as a conversation point in negotiations.
"Koreans might think, 'In fact, a stronger currency is in our interest, so we can also raise that in these negotiations,'" said Fred Neumann, chief Asian economist at HSBC.
“These currency perspectives only appear in some negotiations, not others, perhaps because the United States has not adhered to this issue, but in reality another country has brought them into a form of comfort that the United States demands.”
Tail shakes the dog
Both Trump and Bessent expressed preference for the dollar, although this is not to doubt the U.S. president wants to lower adjustments among the world's top reserve currencies, a deal called the Mar-A-Lago Accord.
"If a country comes out and agrees with the Trump team, they may accept a slightly stronger currency, then it sets the tone for others," said Homin Lee, senior macro strategist at Lombard Odier in Singapore.
In theory, a weaker dollar could reduce the booming U.S. trade deficit with the rest of the world. Over the past few weeks, investors have used this hunch to sell dollar and U.S. assets.
Taiwan’s central bank has repeatedly denied that the U.S. demands that Taipei allow its currency to be appreciated in tariff talks with Washington.
However, a Taiwanese source familiar with the matter believes that any negotiation will eventually lead to foreign exchange problems.
"No one can bear our pressure," the source said.
In Asia, analysts also show that most Asian currencies are weaker than their actual effective exchange rates after long-term trade and inflation-adjusted, meaning they have higher room for trade.
However, analysts also said the undervalues of the yen, victory, dollar and Taiwan dollar are the result of pressures put in these economies that make their goods cheaper on the day.
"The solution to this problem will be to have more fiscal stimulus and to encourage more domestic demand," said BOFA strategist Claudio Piron.
“You might argue that if they appreciate the currency, it could also worsen the problem by creating more disinfection and deflation.”
Adventure business
Not only are there plans for such economic risks, but it can also be unsafe to the market.
On the one hand, Asian governments and citizens have tens of trillions of dollars in assets, and as green falls trends, they need to sell them.
This includes a portion of $33 trillion in USD-based stocks and foreign bonds held by the end of 2024, about $7.5 trillion in foreign reserves in Asia and retail investors and exporters accumulated more retail investors and exporters.
The same challenging idea is that governments can manipulate their currency even in Asia’s fewer open markets.
HSBC's Neumann believes that currency trading (if any) will not be tec, at best, may be a broad statement of currency management principles, and ultimately there is not much demand for individual countries.
"Now, central banks can only tilt their winds and will not affect the overall direction of the currency," he said.
Tohru Sasaki, chief strategist at Fukuoka Financial Group, said any type of currency agreement similar to the 1985 Square Agreement is unlikely.
"Someone said 'maybe the United States and Japan agreed to increase the exchange rate by 10% against the dollar.' But what should we do and how to manage to keep it?" Sasaki said. "So it's like a dream. In the real world, it's impossible."
(Reports by Rae Wee and Vidya Ranganathanadditional, reports by Liang-sa Loh in Taipei, Tom Westbrook of Singapore and Rocky Swift of Tokyo;