BOJ Rate Hike... Exchange Rate Closes Lower at 1,370 Won Level (Update)

[Image source=Reuters Yonhap News]

Following the Bank of Japan's (BOJ) surprise interest rate hike, the Korean won strengthened against the US dollar, causing the won-dollar exchange rate to fall and close in the 1370 won range.

On the 31st, at 3:30 p.m. in the Seoul foreign exchange market, the won-dollar exchange rate recorded 1,376.5 won, down 8.8 won from the previous trading day's closing price (also at 3:30 p.m.).

The BOJ decided at its monetary policy meeting to raise the short-term policy rate from the previous 0-0.1% to 0.25%, increasing expectations of yen strength, which put downward pressure on the won-dollar exchange rate. Earlier in March, the BOJ raised rates for the first time in 17 years, exiting negative interest rates, but it had kept rates unchanged in the two meetings that followed.

The exchange rate started at 1,384.5 won, down 0.1 won from the closing price at 2 a.m., but around the time of the BOJ meeting announcement, the yen strengthened, keeping the rate in the low 1380 won range. After news of Japan's rate hike spread, the rate entered the 1370 won range around 2 p.m.

The decline in the won-dollar exchange rate is expected to be limited for the time being. The Federal Open Market Committee (FOMC) regular meeting results of the US Federal Reserve (Fed) are scheduled to be announced on the 1st (local time), but expectations for a strong signal of rate cuts are low.

Choi Ye-chan, a researcher at Sangsangin Securities, said, "It depends on whether the Fed will give hints about a rate cut in September at the regular meeting on the 1st, but no significant changes are expected," adding, "It is expected that stronger hints will be given at the Jackson Hole meeting scheduled for the end of August, so the scale of the decline itself will be limited."

Going forward, the won-dollar exchange rate is expected to fall to the mid-1300 won range by the end of the year. Researcher Choi said, "Once the Fed starts cutting rates, the momentum for dollar strength will weaken, and the won may strengthen," adding, "Furthermore, considering that the Bank of Korea's Monetary Policy Committee has recently shown a hawkish stance on financial stability, the pace of rate cuts by the Bank of Korea will likely be slower than the Fed's, which could lead to a further decline in the exchange rate."

Meanwhile, the yen-dollar exchange rate closed at 152.77 yen at 3:30 p.m., up 2.15 yen from 154.92 yen the previous day. The yen-dollar rate fell to the 151 yen range during the day immediately after the BOJ rate hike announcement but traded in the high 152 yen range around 3 p.m. The won-yen recalculated exchange rate closed at 900.88 won per 100 yen at 3:30 p.m., up 6.65 won from 894.23 won the previous day.

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