Won Strengthens as Yen Struggles Despite Rate Hike

The South Korean won and Japanese yen, once closely tied as Asian currencies, are now diverging sharply. The won/dollar rate has recovered to the mid-1,300 won range, while the yen/dollar rate remains stuck in the late 150 yen range despite the Bank of Japan's rate hike.

The key difference lies in the composition of each country's current account surplus. South Korea's surplus is driven by goods trade, particularly semiconductor exports, which creates genuine foreign currency inflows and won-buying demand.

Japan's surplus, on the other hand, is propped up by primary income from overseas investments, income that doesn't necessarily translate into yen purchases since profits are often reinvested abroad. President Donald Trump has voiced concerns about yen weakness, and Japanese authorities have signaled possible intervention, but the U.S.-Japan rate differential and persistent outbound investment continue to weigh on the yen.

Experts expect the fundamental divergence between the two currencies to become more pronounced over the next one to two years.