The focus of foreign-exchange investment shifted from dollars to yen, with yen deposits at South Korea’s five major banks increasing by ¥47.8 billion in one month, while dollar deposits continued to see outflows. Expectations of a yen rebound are influencing investment demand.
Yen deposits at South Korea’s five major commercial banks totaled ¥1.1305 trillion as of the 15th of this month, an increase of ¥47.8 billion from the end of last month. By contrast, dollar deposits totaled $69.15 billion, down from $76.34 billion at the end of last month, indicating that outflows had occurred.
The surge in yen deposits came against a backdrop shaped by movements in both the weakening won and the weakening yen. With the yen seen as having room to rebound, views have spread that the dollar has less upside than before. Meanwhile, the won remained firm, showing a contrasting trend to the decline in dollar deposits.
Supply and demand for the yen and dollar have continued to move erratically ahead of the Bank of Japan’s rate decision. While the market is pricing in an additional 0.25-percentage-point rate hike, the impact of the US interest-rate differential remains significant, with opposing forces behind yen buying and selling. Experts are watching the risk of a renewed acceleration in yen appreciation and developments in the factors driving yen depreciation.
The prevailing view is that the won-dollar exchange rate will remain in the 1,300-won range through year-end, limiting the incentive to buy dollars in pursuit of foreign-exchange gains. The Bank of Japan’s policy decision and remarks by Governor Ueda are cited as the next points of focus.