The Korean won fell to its weakest level in seven months on Thursday, weighed down by a sharp decline in the Japanese yen following reports of Japan’s massive spending plan.
The won briefly weakened past 1,470 to the dollar in afternoon trade, before closing at 1,467.90, up 2.3 won from the previous day. That marked its weakest close since April, when the won touched 1,484.10.
It opened domestic trade at 1,467.4 per dollar and extended losses to 1,470.1 at one point, revisiting the 1,470 level for the first time in a week.
The Japanese yen plunged to a 10-month low against the dollar following reports that Japanese Prime Minister Sanae Takaichi is preparing a massive stimulus package exceeding 20 trillion yen, stoking concerns about the neighboring country’s fiscal soundness.
The yen softened past 157 against the dollar, hitting a 10-month low. The 10-year Japanese government bond yield climbed to 1.8%, its highest since June 2008, while the 30-year yield hit a record 3.37%.
The won has closely tracked the yen since April, reflecting the two countries’ overlapping export industries.
With expectations for a near term US rate cut receding, the dollar index’s rebound to 100 added downward pressure on the won, offsetting renewed foreign buying of local stocks of 645.6 billion won on the Korea Exchange on Thursday.
According to the Nikkei, the Japanese cabinet is set to announce a 21.3 trillion yen ($140 billion) economic package on Friday, the first under Takaichi’s leadership.
The plan includes cash handouts of 20,000 yen per child aged 0-18. To fund the measures, Tokyo will draft a 17.7-trillion-yen supplementary budget, the largest since pandemic-era spending in 2020, according to the report.
The heavy spending package dampened market expectations for an interest rate increase by the Bank of Japan.
Market participants see the yen break above 158.84 per dollar in the near term.
To stem’s the yen’s slide, Japanese Chief Cabinet Secretary Minoru Kihara intervened with a verbal warning. He said the government was concerned about one-sided and rapid moves in the currency and pledged to monitor markets closely.
According to the Korea International Trade Association, South Korea and Japan’s export competition index in the US stands at 0.52, the highest among major trading nations.
By contrast, the won’s correlation with China’s yuan has weakened as Korea’s reliance on China has declined amid US-China tensions and Beijing’s tighter currency management.
