Won Set to Soar on Coordinated Yen-Buying Intervention

The Korean won is likely to be the biggest beneficiary among Asian currencies following the recent coordinated yen-buying intervention by US and Japanese authorities. According to analysts, this intervention will lead to a lower dollar-yen rate, which in turn will favor a lower dollar-won rate. Stephen Chiu, chief emerging markets FX strategist at Bloomberg Intelligence, said that 'the suppression on the dollar-yen rate should favor a lower dollar-won rate, along with other Asian currencies against the U.S. dollar.'

The Korean won has already seen its strongest rally in months, supported by increased dollar selling from exporters and inflows linked to SK hynix's American depositary receipt issuance earlier in July. The currency strengthened by 125.4 won against the dollar in July from its June 30 close of 1,549.4 won per dollar, appreciating 8.81 percent.

Analysts believe that the recent intervention could give the won a near-term boost, but once those effects fade, attention is likely to return to 'Korea-specific factors,' including foreign equity flows. Barclays' impulse-response analysis shows that a Korea-specific equity shock could trigger foreign equity outflows. A 10 percent rise in the KOSPI relative to the MSCI Emerging Markets Index would be associated with about $5.3 billion in cumulative outflows and a 0.35 percent depreciation in the won over the following 10 trading days.