07:30 AM EDT, 05/06/2025 (MT Newswires) -- In Taiwan, the central (CBC) bank held an emergency briefing on Monday at which the governor stated that market commentary had triggered "excessive" buying of the Taiwan dollar (TWD) by exporters and international investors, noted MUFG.

Governor Yang Chin-long "solemnly urged market commentators not to speculate irresponsibly about the foreign exchange market, as such comments can destabilize the market and potentially impact the broader economy." Recent market speculation over the potential for further broad-based US dollar (US) weakness, fuelled by optimism over trade deals/agreements to reverse tariff hikes, especially with China has helped to lift Asian currencies, wrote the bank in a note to clients.

Bloomberg notes that there has been building speculation that Taiwan will let its currency strengthen by scaling back intervention in order to help smooth trade talks with the United States, pointed out MUFG. The first round of trade talks between the U.S. and Taiwan finished last week.

Taiwan has been recording outsized current account surpluses of over USD$100 billion over the last four years accounting for between 13%-15% of gross domestic product, indicating that the Taiwan dollar is significantly undervalued, stated the bank.

According to reports, Taiwan has caught market participants by surprise since late last week by appearing to scale back its customary interventions in the currency market to slow the rally in the Taiwan dollar, added MUFG. The monetary authority in Taipei has for years operated a "managed floating" currency policy intended to moderate market volatility rather than weaken the Taiwan dollar.

Governor Yang Chin-long stated that, although the CBC had intervened to smooth volatility in the Taiwan dollar it had been overwhelmed by "excessively strong" and "abnormal" market expectations for appreciation.

At the same time, the Financial Supervisory Commission held a meeting with Taiwan's life insurance companies, which are amongst the biggest Asian holders of U.S. debt. According to reports, it has asked some life insurance firms to discuss how the rapidly strengthening Taiwan dollar has impacted their operations. Bloomberg has reported that the sharp strengthening of the Taiwan dollar could have been reinforced by life insurers seeking to hedge their holdings of U.S. debt, which make up the bulk of more than US$767 billion of international assets, of which only around 65% were hedged at the end of last year.

An increase in hedging flows to better cover long U.S. exposure would continue to put upward pressure on the Taiwan dollar against the US dollar, noted MUFG.