By Yoon Ja-young
The won has reached its highest level against the yen in more than seven years.
The weakening yen is adding to the concerns of exporters competing with Japanese companies.
The arbitrated exchange rate of the two currencies touched 897.28 won per 100 yen on Tuesday morning.
The market uses an arbitrated rate for won and yen as there is not a direct trading market between the currencies. The exchange rate is therefore calculated using a won/dollar rate combined with the yen/dollar rate. Only the U.S. dollar and the Chinese yuan are directly traded in Korea’s foreign exchange market. The value of other currencies, such as the yen and the euro, against the won are shown in an arbitrated rate.
Analysts explained that exporters selling U.S. dollars and an inflow of dollars from foreign stock investors strengthened the won. Foreign investors have bought stocks worth 4.6 trillion won on the Seoul bourse since April 7.
The won is expected to strengthen further against the yen.
“While foreign investment into Japan including stocks and bonds led to a 5-trillion-yen inflow of funds this year, Japan’s investment overseas totaled 10 trillion yen during the same period,” said Choi Mun-bak, a researcher at LG Economic Research Institute, explaining that low interest rates in Japan were prompting Japanese investors to look overseas.
“When considering that the quantitative easing by the Bank of Japan will accelerate this year, Japan’s investment overseas will increase further,” he said. “It means the yen is likely to get even weaker.”
Choi said a considerable portion of Japanese funds seemed to be flowing into the Korean bourse, further strengthening the won.
Some analysts expect the won/yen rate to fall to 850 won per 100 yen by the end of this year, and to 800 won next year.
He said the government had few policy options because the won and the yen were not traded directly ― it would be difficult to make the won weaken against the yen. “Meanwhile, it isn’t easy to weaken the overall value of the Korean won as no one can be sure that the financial market will remain stable,” he said. “Businesses should set up their own measures to cope with this.”
But businesses are concerned that the weak yen and strong won means they will lose competitiveness against Japanese rivals in the global market. About half the countries’ export products overlap.
Bank of Korea Governor Lee Ju-yeol has voiced concern over the weak yen.
“The external risks such as a weak yen and a slowdown in China’s growth have had a negative impact on the Korean economy,” he said on Tuesday.
The Bank of Korea lowered its economic growth outlook for this year to 3.1 percent from 3.4 percent.