May 01, 2024

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From left: Japan's Finance Minister Shunichi Suzuki, US Treasury Secretary Janet Yellen and Korea's Finance Minister Choi Sang-mok hold three-way talks at the US Department of the Treasury in Washington, Wednesday. (Ministry of Economy and Finance)

The top finance policymakers of South Korea, the US and Japan shared their concern on the recent devaluation of the Korean won and the Japanese yen during their first trilateral talks Wednesday.

Korea's Finance Minister Choi Sang-mok, US Treasury Secretary Janet Yellen and Japan's Finance Minister Shunichi Suzuki held three-way talks on the sidelines of the International Monetary Fund and Group of 20 finance leaders' meetings in Washington. They were the first trilateral talks to be held by Choi and his counterparts.

“We will continue to consult closely on foreign exchange market developments in line with our existing G20 commitments, while acknowledging the serious concerns of Japan and the Republic of Korea about the recent sharp depreciation of the Japanese yen and the Korean won,” a joint press statement issued following the talk read.

The statement shows the three allies have shared their concerns about the devaluation of Korea and Japan's local currencies in recent days, amid the strengthening outlook that the US Federal Reserve’s pivot in its monetary policy stance will be pushed back on its higher-than-expected inflation readings.

The strong safe-haven demand for the US dollar amid the heightened tensions from the Israel-Iran conflict have led to even further depreciation of the two currencies.

The Korean won weakened to 1,400 won against the greenback on Tuesday, marking an over 50 won loss from when it closed at 1,349 won on April 1.

Following “verbal intervention” from the local forex authorities, as officials gave out promises to stave off further fluctuations, the won-dollar exchange rate closed at 1,372.9 won Thursday, gaining value by 13.9 won from the previous day's closing. It even strengthened to 1,371.5 won during trading hours.

Meanwhile, BOK Gov. Rhee Chang-yong who is also in the US to attend the meetings, said the devaluation of the Korean won is likely to be “transitory” compared with what happened 1 1/2 half years ago, in an effort to smooth out the volatile foreign exchange market.

“I feel like (the currency depreciation) a little bit deviated from what could be justified by market fundamentals," Rhee said during a panel session talk held with Krishna Srinivasan, director of the Asia and Pacific Department at the IMF.

Rhee said he believes the ongoing currency depreciation is different from that of late 2022. At the time, the won’s value against the dollar weakened to over 1,440 won with the US Fed maintaining a tight grip on its aggressive monetary tightening policy stance.

“It was not just the interest rate differential but the expectation that the US would continue to increase the rate that affected the exchange rate movement more,” Rhee said.

“This time, it will be a little bit different. The general understanding of the market is that it is about the delay of the US rate cut, rather than (the US) reversing (its stance) back to a rate hike.”

He further mentioned the Korean won had lost some of its value thanks to the depreciation of the Chinese yuan and Japanese yen, as the won works as a proxy for the two currencies.

The domestic financial market made a slight recovery Thursday, pacing out of a wave of heightened volatility in recent days.

The Korean benchmark Kospi, which had dipped to a two-month-low closing of 2,584.18 points on Wednesday, made its recovery the next day as it wrapped up at 2,634.7, up 50.52 points. It hit up to the day-high of 2,642.03 points during intraday trading.

Retail investors net sold 657 billion won, while foreigners and institutional investors each racked up 580 billion won and 69 billion won on the market.

The secondary Kosdaq closed at 855.65, up 22.62 points from the previous trading day.

By Im Eun-byel (silverstar@heraldcorp.com)
The Korea Herald