The sliding yen is prompting South Koreans to go bargain-hunting for the Japanese currency in the wobbly financial market as yen-denominated deposits grew the fastest in six years last month.
Analysts, however, say that the yen’s weakness may not last long and could stage a rebound as early as the third quarter if the strong appetite for the currency continues.
According to Bank of Korea (BOK) data on Friday, residents’ yen-denominated deposits at banks stood at $6.25 billion worth at the end of May – a $930 million increase from the month prior. The growth is the fastest since a $970 million month-on-month rise in October 2017.
An increasing number of people loaded up on yen for investment and travel purposes, the central bank said.
Resident foreign currency deposits refer to foreign money deposited at banks by Korean individuals, Korean companies, foreigners residing in Korea for more than 6 months and foreign firms operating in the country.
Dollar-denominated deposits rose by $3.09 billion to $82.29 billion in May while euro-denominated deposits increased by $1.29 billion to $5.74 billion.
The won-yen exchange rate posted at a Korean bank on June 23, 2023 Overall foreign currency deposits increased by $5.4 billion to $96.79 billion last month, snapping a four-month decline.
The BOK attributed the overall foreign currency rise to Korean firms’ increased dividend repatriation from abroad and temporary deposits for overseas investments.
Of the total, corporate deposits rose by $5.13 billion to $82.67 billion while deposits by individuals increased by $270 million to $14.12 billion.
Deposits at local banks and foreign banks rose by $4.97 billion and $430 million to $86.99 billion and $9.8 billion, respectively.
YEN HOVERING AROUND 8-YEAR LOWS VS WON
The Japanese yen has become one of the most actively sought-after currencies among Koreans as it came under pressure following the Japanese monetary authority’s vow to maintain an ultra-eased policy.
Japan’s central bank on June 16 maintained its minus 0.1% short-term interest rate target and a 0% cap on the 10-year bond yield set under its yield curve control policy, as widely expected.
Bank of Japan Gov. Kazuo Ueda said he was still waiting for signs of more sustainable inflation, indicating the BOJ is unlikely to shift its loose monetary policy anytime soon.
Choi Kwang-hyuck, an analyst at eBest Investment & Securities, said the yen’s weakness versus the won may not last long.
“The increased appetite for the yen, led by travelers and investors, will likely boost the value of the Japanese currency. It may be difficult for the weakening to continue into the third quarter," he said.
Write to Jin-gyu Kang at josep@hankyung.com In-Soo Nam edited this article.
