Won Surges as Won-Yen Decoupling Sharpens

The South Korean won has made its strongest gain against major currencies this month, rising 5.8% in value. The yen, on the other hand, has declined 0.9%. This divergence between the two currencies is attributed to a shift in domestic foreign-exchange flows and differences in economic strength and monetary-policy direction between South Korea and Japan.

The won-dollar exchange rate closed at 1,458.5 per dollar in Seoul trading on July 25, down 15.7 won from the previous session. It was the first close in the 1,450s since May 7. The won-yen exchange rate also fell to 895.44 won per 100 yen, its lowest level in about one year and eight months.

The recent $25.6 billion raised through SK Hynix's American depositary receipt listing has contributed significantly to the won's strength. As expectations for further US rate increases rise, foreign investors have turned net buyers of Korean stocks, supporting the won. Some experts expect the pace of declines in the won-dollar exchange rate to slow after next month.