The Korean won strengthened in tandem with the Japanese yen, pushing the won-dollar exchange rate down to the mid-1,330 won range. The rate tried to climb in the morning but extended losses after midday as the yen kept firming on expectations of a further Bank of Japan rate increase and dollar selling flowed in. Surging global oil prices and caution ahead of the U.S. consumer price index release, however, limited further declines.
The won-dollar rate closed at 1,336.1 won in Seoul on the 9th, down 9.5 won from the previous session. That was the lowest level in about one year and 11 months, since October 4, 2024, when it stood at 1,333.7 won. The rate opened at 1,341.1 won and rose as high as 1,342.1 won in the morning before turning lower. It slid to an intraday low of 1,335.0 won around 3 p.m. and then rebounded slightly to finish in the 1,336 won range.
The yen's strength stoked appetite for the won. Mitsubishi UFJ Financial Group said the yen-dollar rate fell to as low as 152.88 yen during the session and that markets have all but fully priced in a 0.25 percentage point BOJ rate increase in September. Japanese wage growth also came in strong at 4.7% from a year earlier, fueling expectations of another rate increase this year. MUFG assessed that the recent yen strength has been driven more by domestic Japanese factors than by global risk aversion.
The unwinding of bets against the yen is also supporting the currency. That has increased broad downward pressure on the dollar, creating a favorable environment for the won. Gains in domestic stocks and dollar selling by exporters also helped push the won-dollar rate lower.
Whether the rate will keep falling quickly remains to be seen. Global oil prices and the U.S. CPI are the key variables that will set the near-term direction. "Yen strength and dollar weakness are driving the won-dollar rate lower, but oil prices and the U.S. CPI could limit the downside," a foreign exchange expert said. "In particular, a surge in oil prices stemming from the Middle East could increase demand for dollars to settle crude purchases and become a factor behind a rebound in the exchange rate."
