Rising intervention risks loom over JPY and KRW – DBS

Japanese Yen (JPY) and South-Korean Won (KRW) have fallen sharply against the US Dollar (USD) over the past three months, prompting warnings from Tokyo and Seoul. The Bank of Japan (BOJ) may bring forward rate hikes to curb imported inflation, while the Bank of Korea (BOK) cites the won’s weakness as a constraint on monetary easing. USD/JPY moves are likely to influence USD/KRW as intervention risks rise, DBS' Senior FX Strategist Philip Wee notes.

BoJ signals potential early rate hike amid Yen weakness

"We are increasingly wary of rising intervention risks in the JPY and KRW. Each currency has depreciated more than 5% against the USD over the past three months, briefly erasing this year’s gains last week. Finance ministers in Tokyo and Seoul have openly flagged one-sided and speculative moves in their exchange rates."

"On excessive currency weakness feeding imported inflation, the Bank of Japan stressed that it may bring forward its timeline for a rate hike without waiting until next year’s spring wage negotiations end. The Bank of Korea blamed the KRW’s weakness for limiting its ability to cut rates to support the domestic economy."

"Unlike Seoul, Tokyo has been explicit about its intervention threshold, stepping in before USD/JPY reached 160. When Japan intervened in July 2024, USD/JPY fell sharply from a 38-year high of 162. Given its high correlation with the JPY on an indexed basis this year, expect USD/JPY to pull USD/KRW lower when it falls."