On the 2nd, the Taiwan dollar surged 9.53 cents against the US dollar, closing at 31.064 NT dollars, marking a new historic high for single-day gains. The Financial Times of the UK suggests that the rise in the Taiwan dollar is linked to large-scale US dollar hedging operations by Taiwan's life insurance industry. In general, central banks can intervene in currency markets; however, Taiwan is concerned about being labeled a currency manipulator by the US, making authorities cautious about overly interfering with the exchange rate, leading to a dilemma.

While Bloomberg attributes the appreciation of the Taiwan dollar to optimistic growth data, expectations of easing trade tensions, and strong earnings from US tech companies, the Financial Times's Alacingal column argues that these reasons are quite tenuous, emphasizing that predictions of a resolution to the trade war are somewhat unrealistic.

Alphaville points out that the real reason for the appreciation of the Taiwan dollar is related to the life insurance industry, which holds as much as $1.7 trillion in overseas assets, predominantly US bonds. Due to limited hedging capabilities, life insurance companies, which have long-term holdings in US dollar-denominated assets, face significant mismatch risks between their NT dollar liabilities and dollar-denominated assets. This situation occurs throughout Asia, but Taiwan's scale and instability are more pronounced compared to Japan. Unless large-scale borrowing from the central bank is permitted, this mismatch issue cannot be resolved.

Moreover, the Taiwan life insurance sector's solvency is predicated on the assumption that the Taiwan central bank can effectively avoid a significant appreciation of the Taiwan dollar. As the central bank has historically tolerated this operation, there is a concern that if the Taiwan dollar appreciates too much, the financial structure of the life insurance industry could suffer severe damage.

Typically, in response to significant currency appreciation, central banks might consider printing more money to mitigate the trend; however, Taiwan is wary of being labeled a currency manipulator by the US Treasury, making authorities cautious in their stance, especially as they are currently in tariff negotiations.