Rare Japan-South Korea joint intervention shakes up yen and won
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The yen was lifted away from 40-year lows, while the Korean won firmed 2 per cent to its highest in nine months.
PHOTO: REUTERS
- Japanese and South Korean authorities conducted a rare joint intervention to buy their currencies, lifting the yen from 40-year lows and strengthening the won by 2 percent.
- The intervention aligned with US interests to reduce high exchange rates and encourage investment in America, with Korea and Japan's currencies tightly linked.
- Despite the Bank of Japan holding rates steady, market focus remains on future rate hikes amid concerns over excessive yen weakness and ongoing currency market volatility.
AI generated
SINGAPORE – The Japanese and South Korean authorities stepped in to buy their currencies in the open market in what sources described was a rare and unprecedented coordinated market intervention, possibly alongside the US.
The intervention late on July 30 lifted the yen away from the 40-year lows it had been hovering around this week, although traders were back testing Tokyo’s resolve on July 31 as the Bank of Japan (BOJ) held rates steady as expected.
The move in the yen came around the same time as the Korean won firmed 2 per cent to its highest in nine months.
A market source told Reuters that South Korea’s foreign exchange authorities had conducted a rare dollar-selling intervention.
“The interests of each country aligned. For Korea-Japan cooperation, the won and the yen are so tightly coupled that a joint intervention could double the impact,” said Lee Min-hyuk, an analyst at KB Kookmin Bank.
“From the US perspective, Korea and Japan need to invest in America. Since the exchange rate has been exceptionally high recently, the US likely wanted our exchange rate to come down as well.”
The Nikkei newspaper reported earlier on July 31 that Japan likely conducted massive yen-buying intervention and said that the US authorities conducted rate checks.
The yen was last at 160.64 per US dollar, 0.7 per cent softer on the day after strengthening to as much as 157.8 in the previous session, raising the stakes for the BOJ meeting as investors worry that interest rate hikes may not come fast enough.
The central bank kept interest rates steady at 1 per cent on July 31, but the focus will be on the comments from the central bank and whether it is ready to continue pushing up borrowing costs.
“The key signal from last night’s move is that the Ministry of Finance remains uncomfortable with excessive yen weakness,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management.
Japan has intervened in currency markets in coordination with the US or other Group of Seven partners five times since 1985, and eight times on its own, according to an analysis by currency strategist and trader Brent Donnelly at Spectra Markets.
Most of the joint interventions coincided with a turn in the direction of the dollar/yen pair, his analysis shows.
Meanwhile, the won, which hit a 17-year low of 1,561.50 in June, was last nearly 1 per cent weaker at 1,437.62 per US dollar on July 31. It has gained nearly 8 per cent in July on the back of firms repatriating dollars back into South Korea.
SK Hynix raised US$26.5 billion (S$34 billion) in a US offering earlier in July, with a source familiar with the matter telling Reuters the firm converted a part of the funds it raised in its American depositary receipts (ADRs) offering into won.
“People were questioning whether the exchange rate would rebound once the ADR ended,” said KB Kookmin Bank’s Lee.
“As the ADR concluded and Japan intervened to support the yen, our authorities probably used this opportunity to push the rate down and break the market’s high exchange rate expectations.” REUTERS
REUTERS
