Capital inflows were affecting the entire region any move by the central bank to weaken the baht against the market trend could spur even greater inflows and speculative activity. In any case, regulators expected the baht to weaken in the second half of the year as exports slow and the current account surplus shrinks.
Bank of Thailand governor Tarisa urged exporters to refrain from panic selling of US dollars as the baht took its advance to almost 3 percent in July. Anything to do with the baht will trigger a sense of unease among other smaller Asian nations. Many will still remember the 97 implosion started by the Thai baht free fall. Japan, meanwhile, said it had doubled the amount of foreign currency reserves it makes available to Thailand to shield against a possible financial crisis. As mentioned before, Japan is really a good friend (read Additional Lessons From 97 Implosion), now Japan did not even wait for things to become problematic before jumping in to help calm the waters. Under the bilateral arrangement, Japan will now offer up to US$6 billion from its foreign exchange reserves to Thailand in the event of a currency crisis. A similar currency crisis like 97 is very unlikely because the fundamentals in Thailand and rest of Asia are quite different. Still, its good to monitor the situation.