The value of the yen has strengthened following a joint intervention by the U.S. and Japanese foreign exchange authorities, drawing attention to the value of the won. The intervention aims to curb the historically low yen, raising expectations for a concurrent strengthening of Asian currencies. However, analysts suggest that the intervention may have limitations in reversing the yen's long-term downward trend.
According to the International Financial Center, the yen appreciated by 2.43% against the U.S. dollar on July 30, followed by a 1.35% increase on July 31. On August 3, the yen recorded an additional 0.36% gain in Asian markets, indicating the immediate effects of the U.S.-Japan intervention.
This year, the yen has been undervalued. On July 23, the yen fell to 163.986 per dollar, nearing 164, marking the highest level since December 1986. Concerns over Japan's economic slowdown and the expansionary fiscal policies of the Takaiichi Cabinet are cited as factors behind the yen's weakness. The International Monetary Fund (IMF) recently lowered its forecast for Japan's economic growth this year from 0.7% to 0.6%.
The Bank of Japan's (BOJ) loose monetary policy has also contributed to the yen's depreciation. After raising the benchmark interest rate to 1% in June, the highest in over 30 years, the BOJ decided to keep the rate unchanged at its monetary policy meeting last month. Despite inflation rates exceeding its target, the BOJ remains cautious about raising rates due to decades of battling deflation risks.
The value of the won has risen sharply due to a reduction in foreign selling pressure and improved dollar supply from importers, coupled with a coupling effect with the yen. Last month, the won appreciated by 8.81% against the dollar, the highest increase since March 2009 (10.88%). Notably, on July 31, the won-dollar exchange rate fell to the 1,410 won range, the lowest in nine months.
With further cooperation anticipated between the U.S. and Japan, there are expectations for additional gains in the value of the won. Market experts view the weakening dollar and the easing of the yen's decline as favorable factors for Asian currencies, including the won. iM Securities predicts that the won-dollar exchange rate will continue its upward trend, with the direction of the yen-dollar exchange rate being a significant variable in the short term.
The speed of the yen's rise is also a variable to consider. Shin Yoon-jung, a researcher at SK Securities, stated, "If the yen rebounds rapidly, the unwinding of yen carry trades could lead to a reduction in positions across risk assets. While the possibility of further appreciation of the won remains open in the short term, it is essential to be cautious about increased volatility in the won if the yen strengthens quickly."
However, there are analyses suggesting that the recent interventions by both countries may not sustain the yen's value in the long term. For a trend reversal in the yen's strength, fundamental changes are needed, including favorable capital flows (such as the return of overseas investment funds), accelerated interest rate hikes, and securing fiscal soundness. According to the Wall Street Journal, Nabil Millali, a portfolio manager at Edmond de Rothschild, stated, "Without monetary tightening from the Bank of Japan, the yen's upward trend will not be sustainable."
* This article has been translated by AI.
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