Asian currencies weaken after BoJ, oil weighs

Asian currencies extended modest declines on Friday in line with the yen, which weakened after the Bank of Japan raised rates but said borrowing costs could be kept low for some time. Record high oil prices and heightened global security concerns also weighed on regional currencies.
Israel's bombing of Beirut airport, the collapse of talks between South and North Korea over a missile crisis, and tensions between Western powers and Iran over Tehran's nuclear programme unsettled markets and encouraged investment flows into safe-haven assets such as the Swiss franc, US Treasuries and gold. The South Korean won was down half a percent near 954 per dollar, tracking yen losses.
The Singapore dollar weakened a quarter of a percent to hit 1.5850/60 per US dollar. The Indonesian rupiah and Taiwan dollar shed a quarter of a percent each.
Claudio Piron, J.P. Morgan Chase's currency strategist said the yen's correlations with Asian currencies had declined over the past couple of years, yet there would be some spill over of the reaction to the BoJ rate rise.
"It is very hard at this stage to disentangle what's going on because there are a lot of cross-currents. Obviously, the geopolitical risks and oil prices have hit the yen and the rest of Asia significantly," he said.
"That is the predominant driver but, at the margin, the rate decision does matter."
Piron said he was somewhat sceptical of the theory that the tightening of Japanese policy would reduce the funds driving some of emerging Asia's growth.
"At the same time, the ending of zero interest rate policy also symbolises a more normal functioning Japanese economy, which will be more beneficial for the region than an economy in the throes of deflation," he said.
The Bank of Japan (BoJ) raised overnight rates by a quarter-percentage point from zero. But it said policy would be kept accommodative and rates low. The yen slipped to the weaker side of 116 per dollar to a two-week low, resulting in some weakness in other Asian currencies.
Meanwhile, US crude oil futures hit a record high above $78 a barrel on Friday, rallying for a fourth-straight session due to renewed concerns over Nigeria's supply and an escalation of violence in the Middle East.