Won Breaks Free from Yen as SK Hynix Dollar Flows Reshape FX Outlook

The South Korean won has broken away from the Japanese yen in recent times, staging a sharp rebound while the yen continues to languish near multi-decade lows. The US dollar traded around 1,465 won and ¥163.4 on Friday, with the won strengthening more than 5 percent this month, but still down roughly 1.9 percent against the dollar for the year. The yen has fallen more than 4 percent.

The key difference lies in capital flows, specifically SK hynix's record $26.5 billion American depositary receipt offering on Nasdaq, one of the largest overseas equity offerings ever by an Asian company. Analysts expect a sizeable portion of SK hynix's dollar proceeds to be converted into won to finance domestic projects.

Kwon Ah-min, an FX analyst at NH Investment & Securities, expects conversions to begin gradually rather than all at once, as SK hynix will retain part of the proceeds in dollars to pay overseas equipment suppliers. This suggests the ADR proceeds are more likely to cap rebounds in the dollar-won exchange rate than trigger a one-way appreciation of the Korean currency.