South Korea and Japan Coordinate on Currency Intervention

In recent weeks, the won of South Korea has reached an unexpected level of appreciation against the US dollar. The local currency is now trading at its strongest level since October last year, with a 7% increase in July alone. This development raises questions about coordinated interventions between Seoul and Tokyo, particularly amid concerns from the United States over growing trade deficits linked to the weakening South Korean won. Recent estimates show that the US-South Korea trade deficit has doubled over a decade, reaching $56.4 billion last year before reducing to a still significant amount of $27.3 billion in May this year. Analysts point to the robust demand for advanced chips from South Korea by global markets as a key factor driving won appreciation, with the recent listing of SK Hynix on the Nasdaq contributing significantly. With limited foreign exchange reserves, South Korea's support through coordination with Japan could be crucial in bolstering its currency. Yuji Saito, executive consultant at SBI FX Trade, noted that 'the coordination between the two countries could increase the effectiveness of interventions.' Takahiro Hori from Mizuho Bank emphasized that such interventions are justified by concerns over US trade deficits. Continued appreciation of the won may be further fueled by favorable economic fundamentals and coordinated actions with other nations, including recent Japanese moves to strengthen the yen. Source: Valor Econômico