With decisions by the Fed and BOJ approaching, the South Korean won has been showing a stronger correlation with the yen. Market participants increasingly believe that short-term currency moves will depend on Tokyo’s monetary policy, putting the BOJ’s rate-hike schedule in the spotlight alongside the Fed’s actions.
The focus of global monetary policy this week is on decisions by the Fed and BOJ. The Fed is due to announce its policy decision on Wednesday, with the BOJ possibly following on Friday. The market consensus is that a BOJ rate hike would have a stronger impact on foreign-exchange markets than the Fed, putting the renewed correlation between the won and yen in focus.
Over the past several weeks, USD/JPY moved from ¥159.82 to ¥154.4, indicating a stronger yen, while USD/KRW moved from KRW1,370.4 to KRW1,347.3 over the same period. Some observers say a pattern in which both currencies rise at the same time has re-emerged, reducing the dominance of dollar-driven moves.
Expectations for Fed rate hikes remain elevated and are increasingly priced into markets. Some voices suggest that rate hikes could be limited to around 2–3, while the rise in core CPI and higher crude oil prices are cited as grounds for further hikes. Meanwhile, if the BOJ raises rates in line with market expectations, this could support the yen and potentially spread to a stronger won.
The impact on Asian currencies overall is being shaped by movements in US Treasury yields and rising energy prices. The South Korean won came under pressure against the dollar at points this week, with USD/KRW rising to around KRW1,354.84. Other major Asian currencies have also fluctuated under the influence of a stronger dollar.