Yen Slides Back Toward 160 Per Dollar Despite US-Japan Intervention; Won Holds Firm

Wide US-Japan Rate Gap Signals 'Structural Weakness'

Yen Nears 160 Per Dollar Again

The yen has weakened back toward 160 per dollar despite a rare joint intervention by the US and Japan. The won, which has closely tracked the Japanese currency, remained firm.

As of about 4 p.m. on August 12, the dollar traded at 159.4 yen, leaving it just shy of the psychologically important 160 level. The exchange rate, which had previously climbed above 163.8 yen, fell to 155 yen after the US-Japan joint intervention late last month. It has since resumed its upward march.

The yen-dollar rate has returned to levels seen before the intervention because the main driver of yen weakness remains in place: a 2.75 percentage-point interest-rate gap between the US and Japan. Jesper Koll, a Monex Group executive, said government intervention could not override the basic financial principle that capital flows to where returns are highest. Rising oil prices also added pressure on the yen as talks on reopening the Strait of Hormuz lost momentum. Japan relies on the Middle East for 90% of its crude oil imports.

Markets are watching for another round of intervention if the dollar rises above 160 yen. Japan may use the Federal Reserve's FIMA repo facility to raise funds, pledging its US Treasury holdings to the Fed in exchange for dollars. Park Sang-hyun, a researcher at iM Securities, said investors would still question how long the effect of any renewed intervention could last. He added that even if the Bank of Japan raises its benchmark rate again in September, the move could end up encouraging further yen weakness if markets focus instead on the prospect that the rate-hike cycle is already over.

The won, which tends to move in line with the yen, continued to strengthen. South Korea's won-dollar exchange rate in daytime trading was set at 1,415.7 won per dollar as of 3:30 p.m., down 0.3 won from the previous session. Since late July, the won-dollar rate has fallen by 31 won.

Shim Seong-mi, Hankyung.com reporter smshim@hankyung.com