Taiwan's Foreign Exchange Reserves Fall on US Dollar Strength and Market Interventions

Taiwan's foreign exchange reserves dropped by US$1.159 billion in September, falling to US$600.745 billion. The central bank attributed the decline to the strengthening US dollar and its own interventions in the foreign exchange market, where it sold US dollars to buy New Taiwan dollars in an effort to stabilize the local currency's depreciation.

The central bank noted that this situation mirrored Japan's experience in August, when its reserves fell below US$1 trillion due to market interventions aimed at supporting the yen. The US dollar index rose 2.03 percent last month, while other major currencies except the yen lost value against the greenback. The euro, British pound, Canadian dollar, and Australian dollar all weakened, whereas the yen gained 1.87 percent and the yuan appreciated 0.25 percent.

The New Taiwan dollar weakened 0.69 percent against the US dollar last month, partly due to net outflows of about US$2.3 billion from foreign investors. The central bank emphasized that future movements of the NT dollar will depend on foreign fund flows, exporters' US dollar holdings, and overseas investments by Taiwanese entities. It also highlighted key factors affecting the yen, including potential rate hikes by the Bank of Japan and further market interventions.

The market value of securities investments and NT dollar-denominated deposits held by foreign institutional investors increased to US$1.927 trillion last month, up from US$1.861 trillion in August. This rise, equivalent to 321 percent of foreign exchange reserves, was partly driven by a 3.92 percent increase in the TAIEX.