Money knows the answer

Home > Opinion > Columns

Money knows the answer

Published: 16 Jan. 2026, 00:02

Audio report: written by reporters, read by AI

Cho Min-geun

The author is an editorial writer at the JoongAng Ilbo.

The Korean won is sliding again. This time, however, it is not alone. The Japanese yen has fallen sharply since the start of the year and is now threatening to reach 160 yen per dollar. Japan's finance minister on Wednesday went as far as to warn of “unprecedented and bold measures,” signaling the government's verbal intervention in the currency market. It is a familiar scene.

President Lee Jae Myung, right, and Japanese Prime Minister Sanae Takaichi pose for a commemorative photo at Horyu-ji, an ancient Buddhist temple, in Nara, Japan, on Jan. 14. [JOINT PRESS CORPS]

The yen’s latest drop accelerated after talk emerged that Japanese Prime Minister Sanae Takaichi was considering an early general election. Markets read this as a sign that if Takaichi, widely seen as aligned with the so-called Abenomics, were to secure a firm parliamentary majority, Japan could move more quickly toward fiscal expansion.

In Korea’s foreign exchange market, many analysts say the recent weakness of the won has been influenced by the yen’s movements. This is often described as a “coupling” effect. The direction of the dollar remains the single most important factor in exchange rates, but it is not the only one. The movements of nearby, powerful currencies also matter, especially when economies are closely linked and face similar external conditions. Market participants say the won and the yen have increasingly moved in tandem since the second half of last year, around the time both countries pledged massive investments in the United States under pressure from U.S. tariff policies.

What is striking is that as the won has begun to track the yen more closely, it has also shown signs of “decoupling” from China’s yuan. The yuan has strengthened since the latter half of last year and recently broke past 7 yuan ($0.14) per dollar, its strongest point in more than two years. This is unusual, given that the won was long seen as a proxy currency for the yuan, moving almost in lock step with it.

The currencies of Korea, China and Japan all derive their names from the same Chinese character meaning “round.” But their paths have diverged as sharply as the complex relationships among the three countries themselves. The emergence of a new alignment suggests that the economic landscape of Northeast Asia is shifting.

The coupling of the won and the yen reflects a shared predicament. Both countries are caught between the United States and China as the two powers compete for global dominance. The United States, once a champion of free trade, now openly embraces a rough form of economic nationalism, pressing allies to be what some describe as cash machines. China, for its part, pushes back against U.S.-led supply chain restructuring while pouring subsidies into its own firms, undercutting competitors abroad.

The situation facing Korea and Japan recalls the “prisoner’s dilemma” in game theory. In such circumstances, cooperation often yields far greater benefits than competition. The notably warm tone of the recent Korea-Japan summit likely reflected this calculation. In Japan, voices have also grown calling for a Korea-Japan “middle power” alliance and urging restraint on sensitive issues such as Dokdo. That, too, marks a shift.

By contrast, the decoupling of the won and the yuan signals a gradual loosening of what was once a tight economic bond. There was a time when China’s economy effectively dictated Korea’s fortunes. Much has changed since then. The U.S.-led Terminal High Altitude Area Defense (Thaad) antimissile system dispute, China’s informal restrictions on Korean cultural content and the global supply chain realignment have all taken a toll. Korea’s exports to China accounted for 26.8 percent of the total in 2018 but fell to 18.4 percent last year. The trade balance with China has remained in deficit for three consecutive years since 2023. These trends help explain calls to expand the scope of the Korea-China FTA beyond goods to services and investment.

President Lee Jae Myung, right, and Chinese President Xi Jinping walk past the honor guard at the Great Hall of the People in Beijing on Jan. 5. [JOINT PRESS CORPS]

At a recent Korea-China summit, Chinese President Xi Jinping told President Lee Jae Myung to “stand on the right side of history.” In a world where raw national interests collide, it is not always clear where that right side lies. What is becoming clearer is where practical interests, the business of making a living, are heading. The movements of the two countries' currencies offer an answer of their own.

President Lee's reply that he took Xi's remark as a quotation from Confucius likely reflected that context. Had China, as a major power competing for influence, moved first to lift its opaque restrictions on Korean businesses and culture, the answer from Seoul might have sounded very different.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.