Korean won at 1-yr low vs yen; end of boon for exporters

The South Korean won has extended its losses against the yen, with the Japanese currency highly sought after as a safe haven asset in the wobbly financial market and ahead of the inauguration of its central bank chief.

On Thursday, the won hit its weakest level to the yen in a year, with the yen/won rate breaking the 10.00 threshold.

The yen advanced to as high as 10.036 per won in local trade on Thursday. It was the first time the exchange rate has crossed the psychologically important 10.00 mark since March 25, 2022, when it was quoted at 10.002.

On Friday, the won staged a slight rebound. The yen was trading at 9.98 per won by the local market's close. 

Year-to-date, the won has lost 3% of its value against the Japanese currency, tracking the yen’s upward trend against other major currencies.

Investors have been seeking to park their money in the Japanese currency after the collapses of Silicon Valley Bank and Credit Suisse threw the global financial market into turmoil. 

Additionally, the inauguration of Ueda Kazuo as governor of the Bank of Japan (BOJ) this Sunday helped shield the yen from global market turbulence. 

Investors expect that the former BOJ policy member might abandon Japan’s ultra-low interest rate policy, in tandem with other developed countries’ monetary tightening. 

According to the Nikkei Currency Index, an indicator of the overall value of each of the major currencies, the yen has advanced 3.2% in March alone. It marked the biggest gain among the 25 currencies the Index tracks over the same period.

By comparison, the won edged up 0.5% during the period, while the US dollar dipped 1%. 

HI Investment & Securities analyst Park Sang-hyun said the yen also found support from market expectations that Japan would likely overtake South Korea this year in terms of economic growth rate. 

The yen is expected to sustain its upward trend for the time being. According to Morgan Stanley, the yen is forecast to strengthen to 120 per the US dollar in the near term, versus the current level of 130. 

NO MORE BOON

The yen’s advance has tended to benefit South Korean exporters, making their products cheaper in the neighboring market. 

But their price competitiveness in Japan and increased shipments there will unlikely lead to profit growth.

As South Korean products become more sophisticated, they are more and more reliant on foreign-made components, which now make up almost half of their costs, said Yoon Duck-ryong, a researcher at the Korea Development Institute (KDI), a state-run think tank.

“Our exporters will no longer take full advantage of the stronger yen,” he added.

DOLLAR/WON EXCHANGE RATE

Despite the dollar’s overall weakening against other currencies, the South Korean won has been also softening against the US dollar.

The dollar/won rate has been on an upward trend since February, when the dollar was quoted at 1,222 per won. It is now trading above the 1,300 won level.

The Korean currency has been weighed down by shrinking exports as well. 

South Korea suffered two months of current account deficits in January and February of this year, according to the Bank of Korea. It was the first time for Asia’s No. 4 economy to report two consecutive months of current account shortfalls in 11 years.

Write to Do-Won Lim and Yeong-Hyo Jeong at Van7691@hankyung.com

Yeonhee Kim edited this article