Taiwan Central Bank Defends Currency Amid Market Outflows

Taiwan’s central bank spent a record amount in 2024 to defend its currency as stock market outflows worsened and trade tensions escalated, with further interventions potentially on the horizon. According to a report submitted to lawmakers, the central bank sold a net $16.4 billion in foreign exchange markets last year—marking the third consecutive year of intervention and the highest amount since 2018.

Governor Yang Chin-long presented the findings to lawmakers on Thursday, acknowledging the challenges facing Taiwan’s foreign exchange market. The report cited “Trump 2.0-induced uncertainties” and massive short-term foreign capital flows as significant pressures on the market’s stability.

In 2024, the Taiwan dollar depreciated more than 6% against the U.S. dollar, extending its losing streak to three years. The decline has continued into 2025, with the currency falling another 0.5% amid unprecedented foreign investor sell-offs from Taiwan’s stock market. The sharp drop was particularly tied to a dip in the fortunes of Taiwan Semiconductor Manufacturing Co. (TSMC), a key market player.

The report also highlighted the growing influence of foreign investors on Taiwan’s equities market. Driven by an AI-driven demand surge for TSMC, the market value of local stocks owned by global funds grew to 142% of Taiwan’s foreign reserves by the end of February, up from 69% in 2016.

Despite this increased foreign presence, foreign investors have been shedding Taiwanese equities, with net sales totaling NT$391 billion ($11.9 billion) over the past 12 sessions. In total, they sold a net $19.5 billion in Taiwanese stocks in 2024.

TSMC, which represents over a third of Taiwan’s benchmark stock index, has seen its shares drop about 10% this year.

While addressing lawmakers, Governor Yang downplayed the impact of TSMC’s $100 billion investment plan for its U.S. facilities, reassuring that the company would not need to purchase additional U.S. dollars from the foreign exchange market. According to Yang, the company’s earnings are sufficient to fund its overseas investment without further currency market intervention.

Regarding inflation, the central bank expects the rate to remain stable at around 2% for the year, though Yang noted that it could revise the forecast higher if energy prices, such as for electricity and railway tickets, rise. “We need to be more concerned about uncertainties over inflation and the economy,” Yang remarked.

Despite the concerns, Taiwan’s five-year government bond yield closed 3 basis points lower at 1.58% on Thursday, indicating that investors are not overly concerned by the central bank’s outlook.

The central bank is scheduled to announce its next interest rate decision on March 20, as it continues to monitor the evolving economic landscape.