Value context and insight. lkm@koreatimes.co.kr
Yen balance ticks down in July amid cashing out, narrowing US-Japan long bond yield differential
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By Lee Kyung-min
The balance of Japanese currency held by Korea's top five commercial lenders fell to 1.21 trillion yen (11.2 trillion won) in July, breaking seven months of consecutive uptrend since January, data showed Sunday.
Behind the downtick is yen investors cashing out on the back of a 14-month high of the Japanese currency against the Korean won.
Also at play was the narrowing long bond yields differential between the United States and Japan. U.S. bond yields are showing signs of decreasing due to expectations of the U.S. Federal Reserve easing, while Japanese yields are rising on the Bank of Japan's rate hike on Thursday.
The Korean won traded at 930 won against 100 yen Friday, significantly down from around 859 won on July 1. The Japanese currency crashed to 161 yen against the U.S. dollar in the first week of July, the weakest in 37 years. It has since bounced back to the 140 yen range in the first week of August.
According to the lenders — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — their combined yen balance of 1.21 trillion was down 81.8 billion yen from the previous month. The July figure was the first decline since December of last year.
The yen balance first surpassed 1 trillion in September last year, after five months of rapid increase from a low of 597.8 billion yen in April of that year.
Also vibrant were currency exchanges between the two.
A total of 72,289 yen-to-won trades totaling 12.8 billion yen were made last month.
Market watchers believe the yen's rapid appreciation will have limited further upward momentum, because the implications of U.S. and Japanese monetary policies have already been priced in.
U.S. long bonds have aligned with market expectations of the Fed easing, a step highly likely to be repeated by Japanese long bonds, provided the yen weakening is limited, according to a KB Kookmin Bank report.
The current trend of coupling will continue unless the central bank in Japan turns to monetary tightening, it said.
"The bond yield differenrial between the two countries will remain and is unlikely to narrow further. The currency will fluctuate in a range of between 140 and 145 yen against the dollar in the fourth quarter of this year."
Meanwhile, the plunging won-yen coupling amplified concerns about market volatility in Korea in early July.
The Korean currency plummeted to a nearly 1,400 won barrier against the U.S. dollar, complicating the country's monetary policy dynamics amid sustained elevated high costs of borrowing over the past 18 months.
A weak currency translating to higher import costs can push up overall prices of goods and services, a major negative of easing.