SINGAPORE, Jan 28 (Reuters): The South Korean won suffered its largest daily fall in 16 months, leading a slide in emerging Asian units spurred by views that some regional authorities may want softer currencies to protect exports and economies as the yen falls.
The won fell as offshore funds sold it and Seoul shares. A member of the South Korean central bank policy board ramped up its warning against a possible surge in capital inflows as a result of the ultra-loose monetary policy led by the advanced economies.
The Taiwan dollar slipped to its weakest in more than four months on stock outflows on selling by foreign financial institutions. In Indonesia, dollar demand by importers hit the rupiah.
"There could be some further pullback in Asian forex. A higher dollar/yen will drag the rest with it and Asian central banks will be happy to see some local currency weakness," said a senior US bank trader in Singapore.
The dealer also expected a "reasonable chance" to see a change in the appreciation trend of emerging Asian currencies.
Until recently, regional units were major targets of investors looking for higher yields with cheap money printed by major central banks, especially the Bank of Japan.
Japanese Prime Minister Shinzo Abe urged the BOJ to hit its inflation target as soon as possible, keeping up pressure on it to make good its promise of bolder action.
Reflationary economic policies to fight deflation had pushed up some emerging Asian currencies to multi-year highs earlier this month.
That created headaches among authorities in other Asian countries as some, especially South Korea, lost price competitiveness and profitability in export markets, although the won was still cheaper than the yen and the dollar were before the 2008-2009 global financial crisis.
Other Asian countries have seen increasing hot money inflows.
On Saturday, Bank of Korea Governor Kim Choong-soo said Japan's monetary easing had "created problems."
Last week, China's foreign exchange regulator warned of speculative capital inflows.
"The currency war story is starting to grab some attention and people are buying dollars ahead in anticipation of weakening of Asian currencies to catch up with the yen," said a European bank dealer in Manila.
Won: The won ended the local trade down 1.7 per cent, its largest daily percentage fall since September 26, 2011, Thomson Reuters data showed. The domestic closing of 1,093.5 to the dollar was the weakest since Oct. 30 last year.
Taiwan Dollar: The Taiwan dollar touched 29.570 to the greenback, its weakest since September 14 as foreign financial institutions sold it.
Rupiah: The rupiah's indicative prices slid 0.5 per cent to 9,690 per dollar, while it traded at levels around 9,790-9,800, dealers said.
Philippine Peso: The Philippine peso weakened, tracking other Asian currencies and as investors covered dollar-short positions.
Earlier, the peso found some relief thanks to remittance inflows but then the extended slide in other regional currencies prompted investors to unwind dollar-short positions.