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Taiwan's new central bank chief faces risks from Fed tightening

After first change at the helm in 20 years, Yang Chin-long has big shoes to fill

Taiwan's new central bank governor will face the challenge of keeping the currency and prices stable.   © Reuters

TAIPEI -- Yang Chin-long, who becomes Taiwan's new central bank governor on Feb. 26, will need to steer the trade-reliant island economy's monetary policy as the U.S. continues raising interest rates.

Yang will succeed veteran Gov. Perng Fai-nan, who has been in office since 1998. The change in leadership comes as world's two largest economies -- also Taiwan's top trading partners -- face their own central bank transitions.

Early in February, Jerome Powell took over as chairman of the U.S. Federal Reserve, becoming the first non-economist to hold the post in more than 30 years. China is expected to name a successor to longtime monetary policy captain Zhou Xiaochuan soon.

The 64-year-old Yang, who has worked for the island's central bank for nearly three decades, has served as its top deputy since 2008. As the trustful aide to his predecessor, Yang is likely to follow the current policy under Perng: maintaining stability in the currency and prices and taking dovish measures on interest rates, according to economists.

Despite the consistency and stability currently reigning at the bank, the veteran still soon need to make critical decisions for the vulnerable trade-dependent island.

Yang has worked for Taiwan's central bank for nearly three decades.   © CNA/Kyodo

"I think this initial handoff from Perng to Yang is going to go well," said Gorden Sun, director of the macroeconomic forecasting center at the Taiwan Institute of Economic Research. "Nonetheless, Yang has to quickly prove to the public in months that he can tackle some of the most complicated tasks, such as [managing] the currency, inflation and interest rates."

After Yang takes the baton, he will first have to deal with hot money that is helping to strengthen the Taiwanese dollar against the greenback. That means he needs to continue fending off suspicions of currency intervention, according to Sun.

Yang will later need to guide the island's benchmark interest rate with the Fed expected to continue hiking rates and tightening monetary policy this year, Sun said.

Taiwan's policy rate has remained at 1.375% since June 2016. In 2017, the New Taiwanese dollar rose more than 8% versus the dollar and continues to surge this year. The stronger currency has hit many export-based businesses but inspired the U.S. government to take Taiwan off its watch list for currency manipulation in October.

The Taiwanese economy is expected to stay stable, growing about 2.42% in 2018, according to the government's forecast. It expanded 2.86% last year. But technology companies, the linchpin of the economy, have seen their stature eroded by escalating competition from emerging Chinese rivals.

Taiwan Central Bank Governor Perng Fai-nan in 2012.   © AP

Yang will also face the challenge of forging his own legacy. He has big shoes to fill in replacing the iconic Perng, who earned the top grade on Global Finance magazine's Central Banker Report Card some 14 times with a track record of leading Taiwan through financial crises, tech bubbles and natural disasters.

Born in 1953 into an impoverished family in the coastal town of Hengchun on the southern tip of Taiwan, Yang earned a doctorate degree in economics from the University of Birmingham in the U.K. with the help of a scholarship awarded by the government. He joined the central bank as a researcher in 1989 and was soon promoted to monitoring the foreign exchange market. He has held a variety of positions at the bank, including serving as the agency's first representative to London.

He is known for being prudent, diligent and disciplined. On the other hand, his relatively unsociable character has earned him no points with the media and he is little known by the public. Although Yang has been the institution's official spokesman since 2012, he seldom speaks out in public. Industry executives said they are not familiar with Yang as he has hardly attended any networking activities, choosing instead to stay extremely low key.

Uncertainties on the horizon this year could keep central bank heads around the world busy. Market watchers are cautious about whether the huge tax cuts spearheaded by U.S. President Donald Trump and the likely end of quantitative easing programs worldwide could disrupt global capital markets and the macroeconomic outlook. 

"We think Taiwan would start to move up its interest rate in June to fight against inflation amid economic recovery," said Tony Phoo, senior economist at Standard Chartered. "But we do see risks this year that could bring instability -- including slower trade growth compared with 2017, and more advanced economies such as the European Union and Japan to call a halt to their unconventional monetary policies."

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