The Structure of Won–Yen Decoupling and How to Verify Exchange Rate Claims ========================================================================== Short-term decoupling between the won and yen can occur when interest rate expectations, capital flows, exporters’ currency conversions, and risk appetite affect the two countries differently. However, claims such as growth rates without a specified period or reference date and large-scale ADR financing must be independently verified using official exchange rate and disclosure data. - Currency decoupling is a phenomenon in which two currencies that previously moved together move in different directions or with different degrees of strength over a certain period. - When the won strengthens while the yen weakens, the won exchange rate per 100 yen falls, but all three exchange rates must remain consistent under the cross-rate formula. - Net purchases of Korean stocks and dollar sales by exporters can strengthen the won, but the actual timing of currency conversion and whether currency hedging was used must be checked. - The US–Japan interest rate gap and the yen carry trade can explain yen weakness, but the trend can reverse quickly if policy expectations change. - Key figures presented, including SK hynix’s USD 25.6 billion ADR financing, are difficult to treat as confirmed facts without dates and official disclosures. The Korean won and Japanese yen have often moved similarly because of shared factors such as dependence on crude oil imports, sensitivity to the global economy, and the influence of the U.S. dollar. However, this is not a fixed rule. If South Korea and Japan differ in their interest-rate outlooks, equity fund flows, and demand for foreign exchange related to trade payments, the won and yen may move in opposite directions. When evaluating exchange-rate claims, it is necessary to check not only the direction but also the comparison period, reference point, exchange-rate quotation method, and official disclosures. In particular, expressions such as “recently,” “the lowest in 40 years,” or “the highest appreciation rate among major currencies” are not enough to establish whether a claim is true unless a specific time frame is provided. Conclusions to Check First Short-term decoupling in which the won strengthens while the yen weakens is economically possible. A statement that the won strengthened against the dollar generally means that the USD/KRW exchange rate fell. A statement that the yen weakened against the dollar generally means that the USD/JPY exchange rate rose. If these two movements occur at the same time, the won exchange rate per 100 yen falls. However, the provided material does not include observation dates or official sources, and some corporate financing and investment amounts require separate verification through official disclosures. Accordingly, this issue should be read by separating “why decoupling is possible” from “whether the individual figures presented are factual.” The Precise Meaning of Decoupling In the foreign exchange market, decoupling refers to a phenomenon in which currencies or assets that normally show a high degree of synchronization move in different directions for a certain period or differ significantly in the scale of their fluctuations. The won and yen do not always move in the same direction. Their synchronization may increase when the following factors affect them similarly. Sensitivity to Asian manufacturing and global trade conditions The impact of crude oil and raw-material import prices U.S. interest rates and dollar strength Risk aversion or risk appetite in international financial markets Conversely, synchronization may weaken if South Korea and Japan differ in their policy-rate outlooks, expected growth rates, and securities fund flows. Moving in opposite directions for several days or weeks does not by itself confirm a long-term structural change. Information Needed to Measure Decoupling Analysis start and end dates Whether the data use daily closing rates or intraday rates Whether the rates are against the dollar or effective exchange rates Return correlation coefficients over at least several months Whether movements before and after a specific event are statistically unusual “Twin currencies” is an informal market expression, not an economic law requiring the two currencies to move together. The Relationship Among the Three Exchange Rates and How to Calculate Them To interpret exchange rates, the direction of the quotation must first be checked. Indicator Meaning General interpretation of a decline General interpretation of an increase USD/KRW exchange rate Won required to buy 1 dollar Won strengthens Won weakens USD/JPY exchange rate Yen required to buy 1 dollar Yen strengthens Yen weakens Won exchange rate per 100 yen Won required to buy 100 yen Won strengthens against the yen Won weakens against the yen The three exchange rates are connected by the following cross-rate formula. Won per 100 yen = 100 × USD/KRW exchange rate ÷ USD/JPY exchange rate For example, if the USD/KRW exchange rate is 1,450 won and the USD/JPY exchange rate is 160 yen, the theoretical won exchange rate per 100 yen is approximately 906 won. 100 × 1,450 ÷ 160 = 906.25 For figures of 1,450 won per dollar and 800 won per 100 yen to be presented simultaneously, the USD/JPY exchange rate at the same point in time would have to be approximately 181.25 yen. It is therefore necessary to check whether exchange rates from different dates were mixed or how the “800-won range” was defined. Actual transaction rates may differ from theoretical values because trading spreads and fees are added. Why the Won May Strengthen Relatively Increase in Domestic Dollar Supply When exporters convert the dollars they receive into won, the supply of dollars in the foreign exchange market increases, putting downward pressure on the USD/KRW exchange rate. If companies expect the exchange rate to fall further and convert export proceeds earlier than usual, short-term movements may also be amplified. However, export proceeds are not necessarily converted in full immediately. Companies may retain the dollars for overseas investment, raw-material payments, or foreign-currency debt repayment, and they may also manage exchange-rate risk through forward exchange contracts and other instruments. Foreign Purchases of Korean Stocks and Bonds When foreign investors sell dollars and buy won to purchase Korean assets, demand for the won may increase. An improving semiconductor industry, upward revisions to corporate earnings forecasts, and attractive valuations for Korean stocks may provide the backdrop for capital inflows. However, foreign investors’ net purchase amounts do not exactly equal spot foreign exchange purchases. This is because they may use won they already hold or use foreign exchange swaps and currency hedges. Trading statistics by investor type should be checked using Korea Exchange data with the period and market specified. Changes in South Korea’s Growth and Interest-Rate Outlooks If South Korea’s growth outlook improves or the Bank of Korea is expected to delay interest-rate cuts, the relative attractiveness of won-denominated assets may increase. Conversely, slowing exports, a surge in oil prices, geopolitical risks, and rising U.S. interest rates may weaken the won. Why the Yen May Weaken Relatively U.S.-Japan Interest-Rate Differential If Japanese interest rates are lower than U.S. rates and the gap is expected to persist for a long time, investors have an incentive to borrow yen at low cost and invest in overseas assets expected to offer higher yields. If this process increases transactions involving the sale of yen and purchase of other currencies, it may put downward pressure on the yen. Interest-rate levels and differentials change from one meeting to another. Statements such as “Japan’s interest rate is 1%” or “it is 2.5 percentage points lower than the U.S. rate” must therefore include a reference date. Yen Carry Trade The yen carry trade is a strategy of borrowing yen at a low interest rate and investing in assets judged to offer relatively higher interest rates or returns. Returns are not guaranteed simply by the interest-rate differential. If the yen strengthens, the cost of repaying borrowed yen increases, potentially causing foreign exchange losses larger than the interest-rate differential. Tightening signals from the Bank of Japan, U.S. interest-rate cuts, and sharp increases in market volatility may trigger the unwinding of carry trades and lead to a rapid rebound in the yen. Japan’s Growth Outlook and Policy Signals If the growth outlook is weak and expectations spread that the Bank of Japan will find it difficult to raise interest rates quickly, the yen’s relative attractiveness may decline. Conversely, if wage and price increases continue and the possibility of further rate hikes grows, the yen’s weakness may ease. The direction of policy should not be determined based solely on one phrase from the government or a statement by a politician. It is appropriate to review the Bank of Japan’s policy statement, economic and price outlook, and the governor’s press conference together. Verification of the Figures and Statements Provided The central logic of the provided material can be explained economically, but the following claims are difficult to confirm as stated because they lack dates and original sources. Claim presented Data needed for verification Interpretive caution The won appreciated 5.84% over one month, ranking first among major currencies Start and end dates, list of comparison currencies, closing-rate basis Rankings vary depending on the comparison group and time frame The yen reached a 40-year low against the dollar Intraday or closing USD/JPY exchange rate on the relevant date A “record low for the yen” has the same meaning as a record high for USD/JPY, and the basis for the record must be specified The won per 100 yen was in the 800-won range USD/KRW and USD/JPY exchange rates at the same point in time It must be checked against the cross-rate formula SK하이닉스 raised $25.6 billion through ADRs Financial Supervisory Service DART, U.S. SEC, and official company disclosures ADR registration and raising new funds are not the same concept Foreign investors net sold 149 trillion won in the first half of the year Korea Exchange investor trading results by market KOSPI and KOSDAQ, stocks and bonds, and trading value and net selling amount must be distinguished South Korea’s growth rate is projected to substantially exceed 3% Forecasting institution, release date, and forecast year Forecasts differ by release date and institution 40 trillion yen in loans is needed because of Japan’s investment in the United States Government agreement, financing contracts by project, and guarantee structure An investment commitment does not immediately lead to yen sales of the same amount Why Caution Is Needed Regarding ADRs An ADR is a depositary receipt created to allow shares of a foreign company to be traded in the U.S. market. Merely establishing an ADR program or depositing existing shares does not provide the company with new funds. It is necessary to distinguish whether new shares were issued and sold, whether existing shareholders sold their holdings, and what the total amount and use of proceeds were. Even if a company raises dollars, it cannot be assumed that the full amount will be converted into won. The funds may be used for overseas capital investment or foreign-currency payments, converted in several stages, or currency-hedged. Therefore, a claim that large-scale currency conversion was a key cause of won strength must be supported by corporate disclosures and actual foreign exchange flows. Because the provided figure of “$25.6 billion” represents an extremely large corporate financing transaction, the issuance structure and amount should first be checked through DART, SEC EDGAR, and official company announcements. Without confirmed official disclosures, it is difficult to cite it as an established fact or as a cause of exchange-rate movements. Key Indicators to Watch Going Forward Indicator Potential impact on the won Potential impact on the yen U.S. policy rate and Treasury yields Increases may put downward pressure on the won A widening U.S.-Japan interest-rate differential may weaken the yen Bank of Korea policy signals Hawkish signals may strengthen the won Direct impact is limited Bank of Japan policy signals Direct impact is limited Growing expectations of rate hikes may strengthen the yen Foreign net purchases and sales of Korean securities Net inflows may strengthen the won Limited Dollar sales by Korean exporters May strengthen the won Limited International oil prices A deterioration in South Korea’s trade balance may weaken the won Higher import costs for Japan may weaken the yen Market volatility and risk aversion May weaken the won Carry-trade unwinding may strengthen the yen Dollar index Dollar strength may weaken the won Dollar strength may weaken the yen To assess whether short-term decoupling will persist, it is better to examine the following data together rather than focusing on a single day’s exchange rate. Daily and monthly exchange rates from the Bank of Korea’s ECOS USD/KRW, USD/JPY, and won per 100 yen data from the same point in time Foreign net purchases of stocks from the Korea Exchange Official policy decisions by the South Korean and Japanese central banks Growth forecasts from institutions such as the IMF, compared by release date Corporate DART and SEC disclosures and actual plans for the use of funds Points of Caution for Individuals and Companies Travelers and Consumers When the won exchange rate per 100 yen falls, fewer won are needed to buy the same amount of yen. However, actual costs, including bank and card issuer exchange spreads, overseas payment fees, and local prices, differ from market benchmark exchange rates. Exporters Won strength may reduce the won-denominated value of dollar revenue. For Korean exporters competing with Japanese companies, the simultaneous strengthening of the won and weakening of the yen may increase the burden on price competitiveness. However, the impact differs by company depending on production locations, settlement currencies, and the share of imported raw materials. Investors It is risky to assume that a trend will continue based only on the recent direction of exchange rates. Unexpected central bank decisions or the unwinding of carry trades may cause both the yen and won to reverse quickly. Currency exposure and hedging costs should be considered together with asset returns. Overall Assessment Decoupling between the won and yen may occur when interest-rate expectations, growth outlooks, securities fund flows, and corporate currency-conversion demand move differently in the two countries. In particular, if demand to buy the won and yen carry trades intensify at the same time, the combination of a stronger won and weaker yen may emerge. However, official data and clear reference dates are needed to establish that a particular company’s extremely large ADR financing, foreign investors’ net trading amount, or growth and policy-rate forecasts caused the decoupling. When citing exchange-rate articles or analyses, it is prudent to first verify the mathematical consistency of the three cross rates and the relevant disclosure documents. FAQ Q. Why does the USD/KRW exchange rate fall when the won appreciates? A. The USD/KRW exchange rate is the amount of won needed to buy 1 U.S. dollar. If this figure falls from 1,500 won to 1,450 won, the same dollar can be bought with fewer won, so this is generally interpreted as an appreciation of the won. Q. How do you calculate the won exchange rate per 100 yen? A. Divide the USD/KRW exchange rate by the USD/JPY exchange rate at the same point in time, then multiply by 100. If USD/KRW is 1,450 won and USD/JPY is 160 yen, 100 yen is worth approximately 906 won. Q. Are the won and the yen really twin currencies? A. “Twin currencies” is a market term describing the tendency of two currencies to respond similarly to the global economy, commodity prices, U.S. interest rates, and other factors. It is not an official classification or a fixed relationship, and the degree of co-movement may vary depending on the analysis period. Q. Does the won necessarily strengthen when foreign investors buy Korean stocks? A. If they purchase won to invest in Korean stocks, it can contribute to won strength, but this is not necessarily reflected in the exchange rate on the same scale. They may use existing won funds, foreign exchange swaps, currency hedging, and other methods, while other capital outflows may offset the effect. Q. Does issuing ADRs mean converting all the dollars raised into won? A. No. ADRs may be traded by depositing existing shares, or funds may be raised through new shares. Even if new dollars are raised, they may be used for overseas investments and foreign-currency payments or converted in installments, so it should not be assumed that the entire amount will be converted into won. Q. Why is the yen carry trade a factor in yen weakness? A. When investors sell yen borrowed at low interest rates and buy foreign-currency assets they believe offer higher interest rates or returns, demand to sell the yen may increase. Conversely, if risk rises and they unwind their trades, they must buy back the yen, which can cause it to appreciate rapidly. Q. How can you verify the claim that the yen is at a 40-year low? A. You must first check the comparison currency, the reference date, and whether the price is intraday or the closing price. A record low for the yen against the dollar usually means a record high in the USD/JPY exchange rate, and it should be compared with historical records on the same basis using official daily time-series data. Q. If the won and the yen move in opposite directions for several days, is that structural decoupling? A. It is difficult to say definitively. They may diverge in the short term because of temporary currency conversions by companies or specific policy remarks, so it is necessary to check correlations over several months or longer, interest-rate differentials, capital flows, and whether policy changes persist. Sources - Bank of Korea Economic Statistics System ECOS: https://ecos.bok.or.kr/ - FRED South Korean Won to U.S. Dollar Exchange Rate: https://fred.stlouisfed.org/series/DEXKOUS - FRED Japanese Yen to U.S. Dollar Exchange Rate: https://fred.stlouisfed.org/series/DEXJPUS - Bank of Japan Monetary Policy: https://www.boj.or.jp/en/mopo/index.htm - Korea Exchange Information Data System: https://data.krx.co.kr/ - Financial Supervisory Service Electronic Disclosure System DART: https://dart.fss.or.kr/ - U.S. SEC EDGAR Search: https://www.sec.gov/edgar/search/ - IMF DataMapper Japan Real GDP Growth: https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/JPN Images - Korean emblem rising and Japanese flag falling amid exchange-rate charts and trade flows: https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6NTk5NywicHVyIjoiYmxvYl9pZCJ9fQ==--388a7c89f718a5bc0991693606cebaa591c4d2d4/ai-e67565ec.webp - Infographic with charts, magnifier, calendar, clock, documents, and Korea–Japan trade and finance flows: https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6NjAwMywicHVyIjoiYmxvYl9pZCJ9fQ==--3469acf042863f444bcf6c1e24456dc51cc4dfbf/ai-53d74072.webp --- Category: Report Source: https://injoys.com/en/articles/krw-jpy-decoupling-explained-and-fact-checked License: cc_by Translation-Status: reviewed