There are concerns that the dollar/won exchange rate will fall further and surpass 1,400 won again. According to Market Point, the dollar/won exchange rate on the 25th was 5.8 won higher than the previous day's closing price.
The Korean economy was strong in the first quarter, but its impact on the foreign exchange market was limited.
The Bank of Korea announced that the real gross domestic product (GDP) growth rate for the first quarter rose by 1.3%. This is the lowest growth rate in two years and three months since the fourth quarter of 2021 (minus 1.4%).
This was the highest quarterly growth rate ever, surpassing market expectations of a growth rate of 0.5% to 0.6%. Although the economic growth rate was strong, the won was also weak due to the weak yen.
Despite repeated verbal interventions by the Japanese authorities, the yen continued to fall day by day, with the dollar/yen exchange rate breaking through 155 yen. This was the first time in 34 years, since June 1990, that the yen had exceeded 155 yen against the dollar.
On the same day, Japan's Finance Minister Suzuki again engaged in verbal intervention, saying, "We are closely monitoring foreign exchange movements and will respond appropriately." However, he did not comment on the possibility of directly buying yen.
However, the yen continued to weaken after the verbal intervention, and the dollar/yen exchange rate during trading soared to 155.73 yen.
The strong GDP growth rate is the reason for the strong won.
However, since the won is considered a risky currency, it moves more like a risky asset like stocks rather than an economic indicator, and has a proxy for neighboring currencies.
"The yen is classified as a safe asset, while the won is considered a risky asset and is not dependent on economic indicators," said Min Kyung-won, a researcher at Woori Bank.
"Therefore, even if GDP exceeds expectations, the won will be more exposed to risky assets such as the stock market," he said.
The Korean stock market fell by more than 1% on that day. Foreign investors invested 310 billion won (about 340 billion yen) in the KOSPI market and 300 billion won (about 340 billion yen) in the KOS
The DAQ market saw a net sell-off of 240 billion won (approximately 27 billion yen), supporting the rise in the exchange rate. It is expected that the exchange rate will remain high for some time to come.
The bureau is not expected to intervene immediately, as U.S. first-quarter growth rates, to be announced later that evening, are also likely to exceed expectations.
Moon said, "With the dollar continuing to hold strong, even if Japan's foreign exchange authorities were to intervene, they would only be able to do so much to prevent the yen from weakening.
"If U.S. GDP exceeds market expectations, the dollar/won exchange rate could quickly move to 1,400 won," he said.
"The Bank of Japan needs to either weaken the yen again or strongly demonstrate its willingness to intervene," Min said, adding, "The U.S. is in a bind when it comes to employment and consumption.
"The economy is continuing to perform well, and the economic growth rate is likely to remain positive. In the end, there is no factor that can curb the dollar's strength, and the exchange rate is still at risk of remaining high."
2024/04/26 07:05 KST
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