Korean won hits 18-year high against Japanese yen on booming chip exports
A banker inspects yen notes at a Hana Bank branch in Seoul, Sept. 3. Yonhap
A boom in Korea's semiconductor exports has strengthened the won, pushing it to its highest level against the Japanese yen in 18 years and 9 months, analysts said Wednesday.
According to Hana Bank, the won-yen exchange rate fell as low as 844.16 won per 100 yen in intraday trading Wednesday, its lowest level since January 2008, when it stood at 837.58 won. The rate had hovered between 930 and 950 won per 100 yen in early July before falling sharply over the past three months.
The yen is not traded directly in Seoul's foreign exchange market. Instead, banks calculate the won-yen exchange rate indirectly using each currency's exchange rate against the U.S. dollar.
The won and the yen have moved in sharply different directions since July, a rare divergence between two currencies whose movements have historically reflected "significant overlap in the two countries' export structures," according to Ashok Bhundia, deputy chief economist at the Institute of International Finance.
Analysts say the biggest driver of the Korean won's strength has been semiconductors. Robust chip exports have boosted dollar inflows into Korea and helped underpin a widening current account surplus.
HSBC Global Investment Research called Korea's record current account surplus a "game changer for the Korean won." It said more of the gains are being recycled into the domestic economy through investment, bonuses, shareholder returns and taxes, prompting foreign exchange conversion and further supporting the currency.
"Admittedly, exports growth is still quite narrow-based — so the risk for the Korean won is that the AI boom suddenly ends," said Joey Chew, head of Asia FX research at HSBC.
Stephen Chiu, chief emerging markets foreign exchange strategist at Bloomberg Intelligence, said the won's rally has slowed recently, a development that may be more comfortable for policymakers, but that the currency has remained resilient around 1,340 per dollar.
The Korean won has been one of the few currencies to post significant gains against the U.S. dollar since July. The won-dollar exchange rate fell from 1,549.4 won per dollar at the end of June to 1,424 won at the end of July, 1,368.6 won at the end of August and 1,352.8 won at the end of September.
By contrast, the yen has struggled to gain ground despite the Bank of Japan's interest rate hike last month.
The yen weakened to nearly 164 per dollar in late July, prompting an unusual coordinated intervention by U.S. and Japanese authorities that briefly pushed the exchange rate back to around 156 yen per dollar. The effect of the intervention proved short-lived, with the rate subsequently returning to the 157-160 yen-per-dollar range.
Chiu said the divergence between the two currencies is likely to persist through the end of the year, a period when Korean exports and the won tend to perform well.