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Exchange rate plummets 114 won in a month... US and Japan intervene simultaneously to defend yen for the first time in 2
🇰🇷 South Korea /Economy & Trade

Exchange rate plummets 114 won in a month... US and Japan intervene simultaneously to defend yen for the first time in 28 years

From Dong-A Ilbo · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

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  • The South Korean won has seen a significant depreciation against the U.S. dollar, falling by 114 won in the past month.
  • The U.S. and Japan intervened jointly in the currency market for the first time in 28 years to support the Japanese yen, influencing the won's movement.
  • While a weaker won may ease inflation pressure, it raises concerns about export competitiveness for South Korean companies.

The South Korean won experienced unprecedented volatility last month, depreciating by 113.9 won against the U.S. dollar, marking the largest monthly movement since March 2009. Initially hovering around 1560 won per dollar, the currency began to strengthen following SK Hynix's issuance of American Depositary Receipts (ADRs), which injected significant dollar liquidity into the market. Analysts suggest this dollar supply effect could continue into the next month.

We are seeing the exchange of ADR issuance funds starting from the latter half of last month.

— Kwon A-minKwon A-min, a researcher at NH Investment & Securities, explained the impact of SK Hynix's ADR issuance on the currency market.

Further contributing to the won's appreciation were increased dollar sales by exporting companies, such as shipbuilders securing payments in advance, and a general decrease in foreign investors' stock rebalancing activities. A significant factor was the joint intervention by the U.S. and Japan in the currency market to support the Japanese yen, which had hit a 40-year high against the dollar. This coordinated action, the first in 28 years, also influenced the won's trajectory, as the currencies often move in tandem.

The U.S. and Japan jointly intervened in the foreign exchange market to buy yen.

— NikkeiNikkei reported on the joint currency intervention by the U.S. and Japan.

The strengthening won offers some relief from inflation pressures, particularly for imported goods, and has fueled expectations that South Korea's per capita GDP could surpass $40,000 this year. However, the rapid appreciation raises concerns for exporters. A weaker won typically enhances the price competitiveness of South Korean goods abroad, while a stronger won can erode this advantage, potentially impacting export profitability.

The trend of a weakening won is also possible, and it could fall below 1400 won in the second half of the year.

— Lee Min-hyukLee Min-hyuk, an economist at KB Kookmin Bank, provided a forecast for the exchange rate.

Market outlooks on the mid- to long-term trend of the won remain divided. Some economists foresee a continued downtrend towards 1400 won or lower, citing South Korea's sound economic fundamentals. Others argue that the recent strengthening is temporary, with structural increases in overseas investment demand likely to keep the won weak in the long run. There's also a possibility of the won weakening again in the fourth quarter due to factors like upcoming IPOs in the U.S. and potential interest rate hikes by the U.S. Federal Reserve.

There is also a possibility that the won-dollar exchange rate could rebound in the fourth quarter.

— Kim Seo-jaeKim Seo-jae, an economist at Shinhan Bank, offered a different perspective on the future exchange rate trend.
DistantNews Editorial

Originally published by Dong-A Ilbo in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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