Korean won seen as biggest Asian FX winner from yen support

A banker inspects yen notes at a Hana Bank branch in Seoul, July 29. Yonhap

The Korean won is poised to be the biggest beneficiary among Asian currencies after U.S. and Japanese authorities carried out a coordinated yen-buying intervention, given the won's relatively high sensitivity to moves in the Japanese yen, analysts said Tuesday.

"The suppression on the dollar-yen rate should favor a lower dollar-won rate, along with other Asian currencies against the U.S. dollar, with the Korean won emerging as a clear beneficiary," said Stephen Chiu, chief emerging markets FX strategist at Bloomberg Intelligence.

Barclays also noted in a research published Monday that yen-sensitive Asian currencies, particularly the Korean won, could extend gains in the short term. While most Asian currencies have relatively low sensitivity to moves in the Japanese yen, the Korean won, Singapore dollar and Thai baht are the most responsive, in that order, it said.

"Following an almost uninterrupted decline in the dollar-won exchange rate since early July ... the currency (won) received additional support after the dollar-yen rate fell sharply amid reports of Japanese intervention," said Shinichiro Kadota, head of Japan foreign-exchange and rates strategy at Barclays.

The reaction could be stronger than in previous episodes. Japanese authorities' intervention in May 2024 worth $63.2 billion produced a more modest move of around 3 percent in the dollar-yen exchange rate. The Korean won and Singapore dollar were among the strongest-performing Asian currencies at the time.

"Given the potentially coordinated nature of the recent intervention in the dollar-yen rate, the spillover into Asian foreign-exchange markets could be larger than historical betas alone would imply," Kadota said.

The won is already enjoying its strongest rally in months, supported by increased dollar selling from exporters and inflows linked to SK hynix's American depositary receipt issuance earlier in July.

The currency strengthened by 125.4 won against the dollar in July from its June 30 close of 1,549.4 won per dollar, appreciating 8.81 percent. That marked its strongest monthly performance since March 2009.

Analysts say dollar-repatriation flows may continue into August, while the recent intervention could also give the won a near-term boost. Once those effects fade, however, attention is likely to return to "Korea-specific factors," including foreign equity flows.

"We continue to believe that the path for Korean won is contingent on foreign equity flows," Kadota said.

Barclays' impulse-response analysis shows that a Korea-specific equity shock could trigger foreign equity outflows. A 10 percent rise in the KOSPI relative to the MSCI Emerging Markets Index would be associated with about $5.3 billion in cumulative outflows and a 0.35 percent depreciation in the won over the following 10 trading days.

"The Korean won should continue to rise, with the dollar-won exchange rate falling to at least 1,400 as the SK hynix-related flows continue. Further U.S. dollar weakness before year-end would also benefit high-beta currencies such as the won," Chiu said. "The key risks would be Korea-specific factors, such as an acceleration in outbound equity flows, or a broad-based dollar rally."

U.S. and Japanese authorities jointly intervened to support the yen last week, marking their first coordinated yen-buying operation since June 1998. Japan spent an estimated $52.8 billion on unilateral intervention July 30 and carried out another operation with the U.S. the next day. The U.S. was estimated to have sold $5 billion to $10 billion worth of euros to buy yen.