Foreign Currency Deposits at Banks... "Selling Dollars, Buying Yen"

Yen Deposits Surge by 2 Trillion Won in One Year as Retail Investors Flock

Investors Turn to 'Sell' Due to Psychology That Dollar Is Near Peak
Buying Sentiment Focuses on Yen, Much Cheaper Than Last Year

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] 1071.66 KRW per 100 JPY → 972.58 KRW (Compared to September 16 last year, as of last September 16)

This shows the trend comparing the value of the Japanese yen against the Korean won over the past year. Contrary to the dollar, which is soaring as if breaking through the ceiling, the yen is plummeting. Looking at the foreign currency deposit situation at banks, investors have turned to 'selling' the won-dollar exchange rate due to the belief that it is near its peak, but the yen, which has become much cheaper than last year, is attracting a 'buy' sentiment. This is because buying when cheap and selling later when expensive can yield foreign exchange gains.

The Yen Sinking Underground... Expectation of Foreign Exchange Gains
Yen Deposits Increased by 2 Trillion KRW Compared to a Year Ago

According to the five major banks (KB Kookmin, Shinhan, Woori, Hana, NongHyup) on the 19th, the balance of yen deposits (as of the 15th) was 670.4 billion JPY, an increase of over 200 billion JPY (about 2 trillion KRW) compared to September last year (452.1 billion JPY). The yen’s value hit a yearly high of 1065.56 KRW per 100 JPY since March this year and then plunged vertically, falling to a yearly low of 934.18 KRW in June. Although it has risen slightly since then, the yen is expected to remain weak for the time being.

Experts say it is the right time to invest in the yen, but jumping in aggressively is considered excessive. Kim Hajin, PB team leader at Hana Bank Seo Apgujeong Gold Club, said, "As the yen’s value has dropped significantly, ordinary customers are joining foreign currency deposits with some expectation of foreign exchange gains."

There is also advice to recognize that yen deposits have a 0% interest rate and that the depreciation of the yen against the won is not as large as the depreciation of the yen against the dollar. Even if the yen’s value rises in the future, the foreign exchange gains may not be as large as expected, and interest income is also hard to expect.

Japan Still at Zero Interest Rate, 0% Interest
Expecting Large Foreign Exchange Gains is Unrealistic

Kim Hyunseop, head of KB Kookmin Bank Hannam PB Center, explained, "Recently, inquiries about yen investments have been increasing, but since the U.S. interest rate is higher than Korea’s, dollar deposits can earn some interest income, whereas Japan still has a zero interest rate, so the interest paid on yen deposits is 0%." This situation arises because domestic banks pay different interest rates on foreign currency deposits according to each country’s market conditions and foreign currency demand. In fact, the interest rates on foreign currency deposits at some commercial banks are 1.9% (less than 7 days) to 3.47% (5 months to less than 6 months) for dollars, but 0% across all periods for yen deposits.

[Image source=Yonhap News]

Even if you buy yen to enjoy foreign exchange gains, it is advisable to diversify investments. An Biho, NH NongHyup WM (Wealth Management) specialist, said, "While it is true that the yen’s value has fallen the most since the 1998 Asian financial crisis when measured against the dollar, it is at its lowest level in four years against the won, so large foreign exchange gains are unlikely. For companies engaged in exports and imports, timing the purchase at around 900 KRW per 100 JPY and exchanging in advance to deposit can be useful later."

In the financial sector, the formula 'Yen = safe asset' is considered broken. Kwon Amin, a researcher at NH Investment & Securities, said, "Due to the yen’s weakness, Japan is experiencing a vicious cycle of soaring import prices and trade deficits, so the yen’s weakness is expected to continue. The turning point (when the yen’s weakness ends) is expected to form around the end of this year or early next year."

Dollar Deposits Are Decreasing

Meanwhile, dollar deposits at the four major banks (KB Kookmin, Shinhan, Woori, Hana) were recorded at 51.9 billion USD as of the 15th. They decreased from 52.658 billion USD at the end of July to 51.345 billion USD at the end of August, then slightly increased to about 51.9 billion USD, but overall, the trend is expected to continue downward.

[Image source=Yonhap News]

Experts also advise that although there is room for further exchange rate increases, now is the time to sell dollars, not buy. Jung Sungjin, deputy head of KB Kookmin Bank Gangnam Star PB Center, said, "I believe the won-dollar exchange rate could rise to 1400 KRW, but from now on, it is advisable to start realizing gains on foreign currency deposits. Those who already hold dollars can consider dollar deposits even now, but exchanging won for dollars at this point to expect foreign exchange gains carries risks."

The won-dollar exchange rate started at 1191.8 KRW on January 3 this year and is now approaching 1400 KRW. A representative from a commercial bank explained, "In August, the exchange rate exceeded 1340 KRW, leading to evaluations that it was at a peak, and in September, the exchange rate became an issue again. Each time this happens, many companies and individuals realize foreign exchange gains. Export companies sensitive to exchange rates must sell once the rate reaches an internally set standard, so when the exchange rate rises, the balance of foreign currency deposits at banks decreases."

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