South Korea and Japan Express Concerns Over Currency Volatility

Policymakers in Seoul and Tokyo grapple with rapid depreciation of won and yen against USD, vow to take "appropriate actions" to stabilize currencies amid economic challenges.

Trim Correspondents
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South Korea and Japan Express Concerns Over Currency Volatility

South Korea and Japan Express Concerns Over Currency Volatility

Policymakers in Seoul and Tokyo are wrestling with the rapid depreciation of their currencies against the U.S. dollar. The South Korean won and Japanese yen have reached multi-year lows amid a surge in the dollar's strength, prompting authorities to consider stabilizing measures.

South Korean Finance Minister Choi Sang-mok and his Japanese counterpart Shunichi Suzuki met in Washington and expressed "serious concerns" over the recent weakening of the won and yen. They agreed to take "appropriate actions" to counter excessive exchange-rate volatility.

The won has weakened more than 7% against the dollar this year, while the yen has fallen nearly 9%. The Bank of Korea Governor Rhee Chang-yong described the recent moves in the won as "a little excessive " and stated that the central bank is ready to deploy measures to calm the market if needed.

Why this matters: Currency volatility can have significant impacts on the economies of South Korea and Japan, affecting trade, inflation, and financial stability. The sharp depreciation of the won and yen highlights the challenges faced by policymakers in managing their currencies in the face of a strengthening U.S. dollar.

Authorities in both countries said they are closely monitoring exchange rate movements and foreign exchange supply and demand. "Excessive herd behaviour is not desirable for our economy," the South Korean finance ministry warned in a joint statement with the Bank of Korea.

The finance ministers of South Korea, Japan, and the United States are scheduled to hold their first trilateral meeting in Washington to discuss the currency situation. Governor Rhee emphasized that the Bank of Korea has enough resources to address the volatility if it continues.

The weakening economic momentum in China and concerns of capital outflows have also weighed on the won. A weak currency can boost exports but squeezes households and retailers by pushing up the costs of imports.

In a rare joint statement, the South Korean finance ministry and central bank warned against the won's weakness. Governor Rhee said inflation challenges remain in South Korea, with headline inflation being higher than core inflation. The Bank of Korea kept its benchmark interest rate unchanged at 3.5% on Friday, and Rhee indicated that the central bank won't be ready to move on interest rates until it can be confident that inflation will converge to the target level.

Key Takeaways

  • South Korea and Japan grapple with rapid currency depreciation against USD.
  • Authorities in both countries signal readiness to intervene to counter volatility.
  • Won and yen have weakened over 7% and 9% respectively against USD this year.
  • Currency volatility impacts trade, inflation, and financial stability in both economies.
  • Policymakers to hold trilateral meeting to discuss the currency situation.