Japan and South Korea join forces to interfere in the foreign exchange market to raise the local currency exchange rate! Behind the rare move may be “backing” from the United States

The Zhitong Finance App learned that the Japanese and South Korean authorities are taking action to buy domestic currency in the open market to support the exchange rate. According to sources, this is a rare and unprecedented coordinated market intervention, and the US may also be involved.

During the New York trading session on Thursday, the exchange rate of the yen rose sharply by 3.3% to 157.98 yen to 1 US dollar, the biggest one-day increase since December 2023. However, as of press time, the exchange rate of the dollar against the yen rose again to 160.49 yen per dollar.

According to media quoting relevant market sources, the Japanese government and the Bank of Japan implemented exchange rate intervention to buy yen and sell US dollars. At the same time, the US monetary authorities also carried out “exchange rate checks” as a pre-intervention stage — this means that Japan and the US have joined forces to curb the depreciation of the yen.

The US intervention has made this intervention more influential, and may also make the yen bears more cautious. US Treasury Secretary Scott Bessent said in an interview that he believes the yen is “seriously undervalued” and that “excessive fluctuations” are not good for market health. Japan's top foreign exchange official Jun Mimura said on Friday that Japan received more than just moral support from the US. Japan's finance minister, Katayama Satsuki, said that she was unable to answer questions about whether she had interfered in the foreign exchange market. She reiterated that the authorities were always prepared to respond with a high sense of urgency.

The point in time when the yen strengthened was basically in sync with the appreciation of the won. The won rose 2% on Thursday to its highest level in nine months. According to a source, South Korea's foreign exchange authority carried out a rare intervention to sell off the US dollar.

Lee Min-hyuk, an analyst at KB Kookmin Bank of Korea, said, “The interests of all countries have become consistent. As far as cooperation between South Korea and Japan is concerned, the linkage between the won and the Japanese yen is very strong, so joint intervention may have a double effect.” He added: “From an American perspective, both Korea and Japan need to invest in the US. Due to the recent unusually high level of exchange rates, it is likely that the US will also want the exchange rate to fall.”

As the Bank of Japan kept interest rates unchanged as scheduled on Friday, the focus of the market turned to statements made by central bank officials and whether the Bank of Japan is prepared to continue to push up borrowing costs. Masahiko Loo, senior fixed income strategist at State Street Investment Management, said, “The key signal from market action last night is that Japan's Ministry of Finance is still uneasy about the excessive weakness of the yen.”

According to an analysis by currency strategist and trader Brent Donnelly at Spectra Markets, since 1985, Japan has coordinated exchange rate intervention with the US or other Group of Seven (G7) partners five times, in addition, Japan alone interfered in the foreign exchange market eight times. His analysis showed that most of the joint interventions occurred at a time when the trend of the USD/JPY exchange rate changed.

On the Korean won side, it fell to a 17-year low last year — 1561.50 won to 1 US dollar. The latest report on Friday was 1437.62 won to 1 US dollar, and the intraday decline was nearly 1%. Since this month, the won has accumulated a cumulative increase of nearly 8%, mainly driven by companies repatriating US dollar funds to South Korea.

A source familiar with the situation said that after South Korean memory chip giant SK Hynix completed an issuance of 26.5 billion US dollars in the US earlier this month, the company exchanged some of the funds from its American Depositary Receipt (ADR) issuance for Korean won.

Lee Min-hyuk stated, “Until now, the market has been questioning whether the won exchange rate will rebound after SK Hynix ADR issuance ends. With the completion of the ADR issuance and Japan's intervention in the market to support the yen, South Korea's regulators may use this opportunity to push the exchange rate down and break the market's expectations that the high exchange rate level will continue.”