Pedestrians wait in entrance of a railway crossing at Togoshi Ginza purchasing avenue in Tokyo, Jan. 23. AFP-Yonhap
The won-yen alternate fee is nearing 980 gained ($0.67) per 100 yen, marking its highest stage in 21 months and making journeys to Japan costlier, specialists mentioned Wednesday. A stronger yen additionally provides Korean exporters an edge over their Japanese rivals in international markets.
In keeping with Hana Financial institution, the won-yen alternate fee closed at 972.29 per 100 yen on Wednesday, marking a 6.32 gained decline from Tuesday. This slight drop follows Tuesday’s peak, the best since Could 16, 2023, when it hit 984.37 gained.
The yen’s appreciation is being pushed by Japan’s accelerating inflation, which has raised expectations that the Financial institution of Japan (BOJ) will enhance its benchmark rate of interest in a financial coverage assembly inside the first half of this yr. If a further hike will increase the speed to 0.75 p.c, it could be its highest stage in 30 years.
In February, the yen strengthened by greater than 3 p.c in opposition to the U.S. greenback, whereas the Korean gained weakened by 0.45 p.c.
„The Japanese foreign money is comparatively much less affected by Trump’s tariff insurance policies, whereas the Korean gained is extra delicate,“ Shinhan Financial institution economist Paik Seok-hyun mentioned. „Japan has a decrease reliance on commerce and isn’t a main goal of U.S. commerce measures, whereas Korea has a better commerce dependence.“
The rising yen is predicted to place the brakes on Korea’s Japan-bound journey frenzy.
In 2024, a weak yen, mixed with pent-up demand from the COVID-19 period, despatched Korean vacationers flocking to Japan in document numbers.
In keeping with the Korea Tourism Group, 8.82 million out of 28.69 million outbound Korean vacationers final yr visited Japan — a 26.7 p.c enhance from 2023. The quantity far exceeded these touring to different locations reminiscent of China, Taiwan, the U.S. and Hong Kong.
However the tide could also be turning. „The weak yen has been jet gas for outbound journey. If the yen continues to strengthen, it may hit the brakes on the pattern,“ an official at a home tourism firm mentioned.
This may assist shrink Korea’s persistent journey deficit, which has been within the pink for 26 consecutive years. In 2024, the journey stability posted a $12.5 billion shortfall.
An worker at Hana Financial institution followers a handful of Japanese yen on the financial institution’s headquarters in Seoul, July 2, 2024. Newsis
As well as, the shifting foreign money dynamics may benefit Korean exporters by enhancing their worth competitiveness overseas.
Japan is Korea’s greatest export rival, with 9 out of 10 main export objects overlapping between the 2 nations, based on the Korea Commerce-Funding Promotion Company. Key industries affected embrace semiconductors, vehicles and elements and ships, in addition to medical, precision and optical tools.
„A stronger yen may enhance export competitiveness and probably shift investor curiosity away from the Japanese inventory market, which had benefitted from the extended weak yen, towards Korea and different Asian markets,“ iM Securities researcher Park Sang-hyun mentioned.
The sturdy yen will doubtless proceed for a while, with the foreign money strengthening at a measured tempo quite than surging all of a sudden, specialists say.
„The BOJ is predicted to curb the yen’s additional appreciation by adjusting the timing of fee hikes and the tempo of presidency bond purchases. Nevertheless, the potential for a robust yen stays all year long,“ Park mentioned.
Whereas considerations over yen carry trades are resurfacing, specialists consider the direct affect shall be minimal this time. That is as a result of anticipated gradual financial coverage changes by the Federal Reserve and the BOJ, which can result in solely small fluctuations within the U.S.-Japan rate of interest hole.
The yen carry commerce technique entails borrowing yen at low rates of interest to spend money on higher-yielding property, such because the U.S. greenback. When the BOJ raised rates of interest final yr, international inventory markets skilled a pointy decline in early August as buyers rushed to unwind their positions.
In the meantime, a rising variety of Koreans are cashing in on earnings from their yen deposits. When the yen hit a document low in 2024, many Koreans seized the chance to purchase, betting on its eventual rebound.
In February, yen-denominated deposits at Korea’s 5 main banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — fell by 246.3 billion yen from the earlier month, totaling 823 billion yen.
