Korean investors making bets on the yen

Finance

Published: 16 Jun. 2023, 18:26 Updated: 18 Jun. 2023, 16:18

Korean investors making bets on the yen

A yen sign is posted at a foreign exchange booth in Myeong-dong, central Seoul, on Thursday. [YONHAP]

Korean investors are buying up yen to take advantage of the Japanese currency's weakness. They are eyeing foreign exchange gains if the yen stages a comeback.

The amount of yen deposited at Korea's five largest banks — KB, Shinhan, Hana, Woori and NH — as of May totaled 726 billion yen ($5.15 billion), up 21.4 percent on month, according to bank data.

Yen deposit totals grew in the latter half of last year to 760 billion yen in January and fell over the first four months of this year.

"Yen deposits are increasing notably faster than other currency deposits," a bank source told the JoonAng Ilbo.

The plunging value of the yen played a role in the upswing of yen deposits.

The foreign exchange market in Korea closed Friday with the local currency finishing at 903.82 won to 100 yen. The yen had finished in the 900-territory Thursday, at 906.2, for the first time since June 2015.

One hundred yen was worth 1,000.26 won on April 27. It is down nearly 10 percent in 50 days.

The graph show's the won's closing price against 100 yen between Jan. 2 and June 16. [BANK OF KOREA]

Largely as a result of Japan's negative interest rate policy, the yen has been weak compared to other currencies. The Bank of Japan has maintained its minus 0.1 percent basic interest rate since February 2016.

Japan's central bank adhered to its sub-zero rates even when other monetary authorities, such as the U.S. Federal Reserve and Bank of Korea, increased rates aggressively under monetary tightening policies aimed to tame global inflation.

Currencies typically gain strength when rates increase.

Yen investors are betting Japan's economy will gradually recover as a result of increased spending in the private sector. With more cash flowing in the market, the Bank of Japan may increase rates to fight inflation, which in turn will raise the yen's value.

The weak yen also draws the attention of prospective tourists to Japan who wish to stockpile the currency for future travel. The number of travelers to Japan has been climbing since the post-pandemic reopening, jumping from 1.33 million in January to 1.49 million in May.

Experts agree that the yen is an attractive asset from a long-term perspective, but advise investors to take a conservative approach.

"The yen's value may temporarily rebound if the Bank of Japan turns toward a monetary tightening policy, but it is unlikely to rally with power due to the Japanese economy's structural issue of plateauing growth," said Moon Jung-hui, a senior analyst at KB Investment & Securities.

BY IM SOUNG-BIN, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]