Yen hits 15-year low vs Korean won on less hawkish BOJ

Won also touches two-month high vs dollar on bets the Fed will end its rate hike campaign

Bundles of 10,000 yen bills at South Korea's Hana Bank headquarters in Seoul (Courtesy of Yonhap News)

Jin-gyu Kang 1

2023-11-03 20:42:43 josep@hankyung.com

Foreign exchange

The yen on Friday plunged to the weakest level in more than 15 years against the South Korean won as the Japanese central bank’s recent change in monetary policy was seen as less hawkish than expected, putting pressure on the Japanese currency. The won advanced as investors bet the Federal Reserve may end its interest rate hike campaign.

The Japanese unit lost up to 1.1% to 8.864 against the won, its lowest point since February 2008.

The yen’s weakness came after the Bank of Japan on Tuesday relaxed its grip on long-term rates again by watering down 1% as a reference rather than a rigid ceiling.

“The move disappointed the market, which had expected the BOJ to raise the ceiling of the yield curve control policy to as high as 1.5%,” said Baek Seok-hyun, an analyst at Shinhan Bank in Seoul, referring to the 10-year Japanese government bond yield.

The BOJ’s stance compared with the South Korean central bank, which left the door open to raising its policy interest rate from the current 3.50%.

FED POWERS WON VS DOLLAR

The won rallied after the Fed Chair Jerome Powell on Wednesday suggested interest rates might not have to be raised further to contain inflation after the US central bank left its benchmark rates unchanged.

Powell said the Fed was “proceeding carefully” with further rate hikes, which investors took as a sign that bond markets have largely succeeded in slowing the US economy.

The South Korean currency has appreciated 2.6% against the dollar since then in the domestic foreign exchange market, hitting a two-month high of 1,317.4 versus the greenback on Friday.

“Risk sentiment revived as US long-term government yields fell on growing expectations of an end to the Fed’s rate hike cycle,” said Min Kyung-won, an analyst at Woori Bank in Seoul. “That also attracted stock inflows into Seoul and supported the won.”

Foreign investors bought a combined net 435.1 billion won ($329.4 million) in South Korean stocks on Thursday and Friday, according to the Korea Exchange.

Write to Jin-gyu Kang at josep@hankyung.com

Jihyun Kim edited this article.