Asia Tea Time - Cup 17 ☕

June 30, 2023 • Estimated Reading Time: 7 minutes

This week, I cover news on the Japanese Yen, Taiwan Semiconductor Manufacturing, and the Taylor Swift effect on UOB.

Macro in Asia

Japanese Yen hits a near 7-month low versus the US Dollar

This week, Japan’s Yen hit a near seven-month low against the US dollar (around 145 Japanese Yen to the dollar).

As a result, Japanese government officials came out to say that any excessive movements in the JPY-USD exchange rate will be dealt with “appropriately”.

Why it’s happening

  • So, interest rates have been rising in the US and the US Federal Reserve looks like it might hike them once or twice more (yikes!) this year towards the 6% range.

  • It’s been the opposite case in Japan, where the Bank of Japan’s short-term interest rate is actually slightly negative at -0.1%.

  • That creates a “mismatch” between the US and Japanese interest rates, which allows for the so-called carry trade.

  • What’s that mean? It’s basically currency traders selling a load of Yen and buying up US Dollars. That results in a weaker Yen/stronger Dollar.

Why it matters

  • The USD-JPY trade is the second-most traded currency pairing in the world – after the USD-EUR – so what happens to the Yen impacts global markets.

  • The Japanese Yen has already fallen by nearly 10% versus the dollar so far in 2023.

What’s next?

  • Watch for intervention from the Japanese government if the Yen weakens any further as it bought up US$68 billion worth of Yen on three days in September and October 2022 – as the Yen hit a near 32-year low back then.

Tim’s Take

This isn’t a problem faced by just the Japanese economy but by countries across Asia as investors sell local currency and buy the greenback.

For example, the Malaysian ringgit has weakened by 6% against the dollar while the Chinese yuan has also weakened by 5% against the dollar.

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This is happening against a backdrop of high relative interest rates in the US and low rates in Asia, among other places.

As a result, if you can get a higher return for your cash in US Dollars, it makes total sense to move it to that currency.

And with the Federal Reserve signalling that interest rates will stay “higher for longer” and will most likely rise from here, it could be a struggle for Asian currencies to claw back the losses in the near term.

Company Spotlight

TSMC sends more workers to its behind-schedule Arizona chip plant

It’s been revealed – by Nikkei – that Taiwan Semiconductor Manufacturing Co (NYSE: TSM) (TPE: 2330), the world’s largest chip manufacturer, plans to relocate 500 skilled workers from Taiwan to the US to help construct a cutting-edge chip facility in Phoenix, Arizona.

Why’s it news?

  • It turns out this whole “reshoring” or “friendshoring” trend – where companies locate manufacturing in allied or geopolitically-friendly countries – is actually pretty hard to execute on.

  • TSMC is the undisputed global expert in advanced chip manufacturing (operating what are known as “fabs”). But building an advanced chip plant requires intricate engineering know-how.

Why it matters?

  • The US$12 billion chip plant had meant to be a statement of intent from the US government as it tries to relocate advanced chip manufacturing from Asia to closer to home. It was updated to become US$40 billion investment at the end of last year.

  • That’s a critical consideration as geopolitical tensions in the Taiwan Strait become more and more volatile.

What’s next?

  • While the TSMC chip plant in Arizona is supposed to start production in late 2024, it’ll be interesting to see if it can stick to that timeline.

Tim’s Take

TSMC has become the “go-to” manufacturer of advanced chips. The company is responsible for producing 90% of the world’s high-end semiconductors.

That level of concentration – with China increasingly imposing its influence in the region – has many governments around the world worried.

Chip plants don’t come cheap. For example, TSMC’s latest cutting-edge plant in Taiwan – where it will build 2-nanometre (nm) chips set for release in 2026 – will cost an estimated US$33 billion to construct in Taichung City, Taiwan.

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With TSMC juggling simultaneous plans to build chip plants in Europe and Japan, investors should watch out for whether these semiconductor plants actually end up producing the state-of-the-art chips the company is known for.

That’s because it’s a widely-known fact that Taiwan has the best infrastructure and talent available to more easily build advanced chip facilities.

Tim's money tip of the week

We shouldn’t forget that when we spend on a credit card, we should always be getting something in return.

Usually that takes the form of air miles (usually rewarded in bank points) but even if you don’t regularly redeem air miles for flights, you should be questioning whether the cashback credit cards are worth it.

That’s because many of the cashback cards on the market have specific hoops you need to jump through to be able to earn them, or caps on the amount of cashback you can earn.

When earning bank points that can be transferred for miles, it’s also worth considering what the dollar value of those points is as well (in terms of vouchers).

That’s because bank points earned from your credit card spend can easily be used to redeem vouchers for everyday spending at large supermarkets or department stores.

Story of the week

So, it’s been big news that Taylor Swift is going to play six concerts in Singapore next year.

Three extra shows were recently added to the three initially planned.

What’s bigger news, though, is the surge in credit card applications that large local Singapore bank UOB has received.

That’s because UOB credit card holders are being granted special access to pre-sale tickets for Swift’s Eras Tour in Southeast Asia.

It’s already set to be one of the biggest events in Singapore in 2024 for Taylor Swift fans and UOB cardholders alike.