Hwan-tech Generation Shifts from 'Dollar' to 'Yen'

Significant Profit-Taking Amid Rising Exchange Rates... Yen Weakness Spurs Bargain Buying

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Recently, as exchange rate volatility has increased, dollar deposits have decreased while yen deposits have risen. During April alone, there appears to have been significant profit-taking from the sharply rising dollar, alongside modest bargain buying of the recently plummeting yen.

According to the banking sector on the 2nd, the total foreign currency deposit balance at the four major banks?KB Kookmin, Shinhan, Hana, and Woori?as of April 28 this year was $59.88372 billion (approximately 75.6511 trillion KRW), down $2 billion from $61.8925 billion at the end of March. In particular, the decline in dollar deposits was steep. The dollar deposit balance at the four major banks was $47.81379 billion, nearly $6 billion (about 7.584 trillion KRW) less than the $53.8303 billion recorded at the end of March.

This is interpreted as individuals selling dollars to realize profits due to the rising exchange rate. Due to individual selling pressure, foreign currency deposits shifted to a decline in March after a month of growth, and this trend continued last month. According to the Bank of Korea, as of the end of March, the resident foreign currency deposit balance at foreign exchange banks was $92.71 billion, down $5.43 billion from the end of February. Of this, dollar deposits decreased by $4.88 billion. The sharp rise in the won-dollar exchange rate led to dollar selling for profit-taking. The won-dollar exchange rate closed at 1,272.5 KRW on the 28th of last month, surpassing 1,270 KRW for the first time in 2 years and 1 month.

On the other hand, due to the yen depreciation phenomenon, demand for yen deposits is increasing. The yen deposit balance at the four major banks as of the 28th of last month was 477.34074 billion yen (approximately 4.6516 trillion KRW), up 7.6 billion yen from the previous month. The banking sector believes that as the yen sharply dropped in March, demanders such as families of international students and trading companies who usually need to transact in yen exchanged currency in advance. Along with this, it is estimated that a significant portion of funds for investment purposes anticipating a future rebound in yen value also exists. On the 29th of last month, the yen closed at 970.16 KRW per 100 yen. Since entering 996.53 KRW per 100 yen on March 25, the weakness has continued.

As the trend of a strong dollar and weak yen is expected to continue, capital movement into yen deposits is likely to persist. Lee Da-eun, a researcher at Daishin Securities, said, "The yen surpassed 130 yen per dollar for the first time in 20 years amid a reversal of the US-Japan interest rate differential due to differentiated monetary policies and a trade deficit continuing for eight consecutive months caused by rising energy prices." She added, "Considering the Bank of Japan (BOJ) governor's preference for a weak yen and structural issues such as low wages and low inflation, the possibility of a BOJ policy shift is low. With the widening US-Japan interest rate gap, yen carry trades are expected to increase, acting as an additional factor for further yen weakness." The won-dollar exchange rate could possibly rise to 1,300 KRW. The researcher said, "Since the factors weakening the won remain strong, the upper limit should be left open up to 1,300 KRW," adding, "The won-dollar exchange rate is expected to turn downward as the dollar strength eases around the US Federal Open Market Committee (FOMC) meetings in May and June, but the decline will not be significant."

This content was produced with the assistance of AI translation services.