Bank of Korea Senior Deputy Governor Ryoo Sang-dai speaks at a press briefing held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 11th. Photo courtesy of the Bank of Korea
The won faces intensifying tug-of-war between supply and demand, as won-supportive factors — exporter selling and inflows tied to its inclusion in the World Government Bond Index (WGBI) — collide with dollar demand from a weakening yen, foreign dividend payouts and overseas stock investment.
The won closed at 1,416.0 against the dollar in the Seoul foreign exchange market, down 2.4 won from the previous session.
Markets are paying particular attention to the yen. After strengthening following joint foreign exchange intervention by U.S. and Japanese authorities, the yen has turned weaker again, potentially weighing on the won.
In New York trading, the yen fell to 159.29 per dollar, down about 1% from the previous day. The dollar-yen rate, which had climbed to the 164 range just before the joint U.S.-Japan intervention late last month, dropped to the 155 range after the intervention, but has erased about half of that decline in less than 10 days.
Markets note that the fundamental factors driving yen weakness — Japan’s fiscal concerns, the U.S.-Japan interest rate gap and geopolitical risk in the Middle East — remain unresolved. If yen weakness resumes, downward pressure could grow across Asian currencies, including the won, analysts said.
Still, supply-and-demand factors limiting the won’s decline are considerable. Exporter selling and foreign inflows related to WGBI inclusion could concentrate late this month. Dollar demand tied to the recent listing of SK hynix’s American depositary receipts (ADRs) in the U.S. has also been largely absorbed, according to some observers.
By contrast, foreign dividend payments are emerging as a new variable for the won late this month. Quarterly dividends paid to foreign investors by listed companies this month total about $1.6 billion.
Dollar demand from overseas stock investment also continues. Korean investors made net purchases of $4.64 billion in U.S. stocks last month, according to the Korea Securities Depository.
Meanwhile, Bank of Korea Deputy Governor Ryoo Sang-dai said at a press briefing that the exchange rate is not a key factor in setting the base rate. He described the rate’s level of around 1,400 won as “a very high level.” “I don’t think the exchange rate will fall quickly,” he said, adding, “If asked to name a direction, I’d point downward.”
