"It's Not Easy to Lower Interest Rates in Japan... KRW/JPY Exchange Rate Expected at 940 KRW"

The KRW/JPY exchange rate, which exceeded 1,000 KRW per 100 JPY until a month ago, has dropped to the 950 KRW range this month. Analysts suggest that the Korean won has strengthened relatively due to the expectation that Japan, facing increased uncertainty from trade disputes with the US, will not be able to raise its benchmark interest rate. However, experts have differing opinions on the future movement of the KRW/JPY exchange rate.

According to Hana Bank on the 25th, the KRW/JPY fiscal exchange rate (as of 3:30 PM) is currently in the 950 KRW range per 100 JPY. Until the 29th of last month, the KRW/JPY exchange rate was above 1,000 KRW per 100 JPY at 1,009.52 KRW, but it sharply fell to 968.30 KRW on the 2nd of this month and has continued to decline.

Jung Hoon Seo, a senior researcher at Hana Bank, said, "Before the trade dispute with the US, the market expected the Bank of Japan to raise the benchmark interest rate twice this year, but after the announcement of mutual tariffs by the US, concerns spread that the Bank of Japan would not be able to raise the interest rate as expected due to uncertainty," adding, "As the recent strengthening of the won has gained momentum, the KRW/JPY exchange rate is expected to fall further to the 940 KRW level in the short term."

Seok Hyun Baek, a researcher at Shinhan Bank, explained, "Historically, there is a clear correlation between the rise of the US stock market and the decline in the value of the yen," adding, "As the US stock market, which had been declining since President Donald Trump's inauguration, has recently rebounded sharply, the yen has been under downward pressure, leading to a rise in the KRW/JPY exchange rate." Baek also noted, "Even assuming limited potential for further rises in the US stock market, the KRW/JPY exchange rate could fall further to 930-940 KRW in the short term."

On the other hand, some experts believe that the yen will turn relatively stronger against the won. Nak Won Lee, an FX derivatives specialist at NongHyup Bank, said, "Recently, Japan's inflation indicators have fallen, reducing the incentive for the Bank of Japan to raise the benchmark interest rate, which has contributed to the decline in the yen's value," but added, "Japan still has higher inflationary pressures compared to neighboring countries, and Japan's growth rate and macroeconomic indicators such as consumption are all better than Korea's, so the KRW/JPY exchange rate is expected to rise back to the 1,000 KRW level."

Reporter Jin Jeong justjin@hankyung.com