Japan and South Korea Jointly Intervene in the Foreign Exchange Market to Support Their Currencies! Rare Move May Have U.S. Backing

According to Zhihui Finance APP, the authorities in Japan and South Korea have taken action to buy their own currencies on the open market to support their exchange rates. Sources revealed that this is a rare and unprecedented coordinated market intervention, and it may also involve the United States.

During Thursday's New York trading session, the yen soared 3.3% against the US dollar, reaching 157.98 yen per dollar—its largest single-day gain since December 2023. However, as of press time, the exchange rate reversed, with the US dollar rising again to 160.49 yen per dollar.

According to media reports citing market sources, the Japanese government and Bank of Japan implemented an exchange rate intervention by buying yen and selling US dollars. At the same time, US monetary authorities carried out "exchange rate checks" as a pre-intervention stage—indicating that Japan and the US jointly took action to curb the depreciation of the yen.

The involvement of the US makes the intervention more impactful and may prompt yen short sellers to be more cautious. US Treasury Secretary Scott Besant said in an interview that he believes the yen is "significantly undervalued" and that "excessive volatility" is unhealthy for the market. Japan's top foreign exchange official Jun Mimura stated on Friday that Japan has gained more than moral support from the US. Japan's Finance Minister Katayama Saigetsu said she could not answer questions about whether intervention had taken place, but reiterated that the authorities are always prepared to respond with a high sense of urgency.

The timing of the yen's strengthening aligned closely with the appreciation of the Korean won. On Thursday, the won rose 2%, reaching its highest level in nine months. According to a source, South Korea's foreign exchange authorities conducted a rare dollar-selling intervention.

Lee Min-hyuk, an analyst at KB Kookmin Bank in South Korea, said: "There is now a convergence of interests. The linkage between the won and yen is very strong for Korea-Japan cooperation, so joint intervention may have a double effect." He added: "From the US perspective, both Korea and Japan need to invest in the US. With current exchange rates at unusually high levels, the US is likely hoping for a decrease as well."

As the Bank of Japan kept rates unchanged on Friday as expected, the market focus shifted to statements from central bank officials and whether they are ready to continue raising borrowing costs. Masahiko Loo, Senior Fixed Income Strategist at State Street Global Advisors, said: "The key signal released by last night’s market action is that Japan’s Ministry of Finance remains uneasy about excessive yen weakness."

According to the analysis of Brent Donnelly, Currency Strategist and Trader at Spectra Markets, since 1985 Japan has coordinated exchange rate interventions with the US or other G7 partners five times, and acted alone to intervene in the currency markets eight times. His analysis shows that most joint interventions occurred when the trend of the US dollar against the yen was turning.

As for the Korean won, it fell to a 17-year low last year—1,561.50 won per dollar. On Friday, it was last reported at 1,437.62 won per dollar, down nearly 1% during the day. Since the start of the month, the won has surged nearly 8%, mainly driven by corporations repatriating US dollar funds to South Korea.

A source familiar with the matter said that earlier this month, Korean memory chip giant SK Hynix converted part of the proceeds from its US $26.5 billion American Depositary Receipt (ADR) issuance into won after completing the offering in the US.

Lee Min-hyuk pointed out: "Previously, the market doubted whether the won would rebound after SK Hynix's ADR issuance concluded. Now with the ADR completed and Japan stepping in to support the yen, Korean regulators may seize this opportunity to push down the exchange rate and break market expectations that high levels will persist."