Uncovering the Mini-Currency War: South Korea Vs. Japan

ForexNewsNow | Published on October 14, 2010 at 10:32 pm

Japan South KoreaNEW YORK (Forex News Now) – While most eyes are focused on forex trading news coming from the United States, European Union, and Japan in respect to each other’s currencies, a small and relatively minor conflict is emerging between Japan and another country, this one a lot closer to home – South Korea.

Today, the government of South Korea lodged a complaint with Tokyo via telephone after the Japanese government allegedly commented on South Korea’s role as leader of the G20 forum. The comments, delivered in an address on Wednesday given by Japanese Finance Minister Yoshihiko Noda, brought up Seoul’s interventions in the currency market to control the rise of the won.

Kim Choong-soo, the governor of the Bank of Korea, said, “It is inappropriate to talk about a certain country’s foreign exchange policy unilaterally.”

What went unspoken yet assumed was this fact: Japan most recently intervened in the market itself on September 15th, purchasing over $30 billion worth of yen to push its own currency down relative to the dollar.

Both South Korea and Japan engage in currency interventions because they are export-driven economies that suffer when their currencies – the yen and the won, respectively – rise relative to other major pairs.  While Japan’s forex trading news has been more visible, South Korea has quietly been playing the same game.

One of the latest reported moves came on September 27th, when the Bank of Korea bought anywhere from 500 to 700 million dollars as the dollar fell to the 1,146 won mark – the lowest exchange rate between the won and USD since May of this year.

South Korea is also benefiting from a weak won relative to the yen.  As of today, JPY/KRW was up slightly 0.05% to 13.6300, down from the year’s peak at 14.2105 but still up from the year’s low of 11.919.

Manufacturers in Japan have strongly petitioned their government to intervene and halt the rise of the yen against the won, since Japan and South Korea compete directly against each other when it comes to selling to foreign importers.  Japan also has a large trade surplus with South Korea, which can typically sell competing products cheaper than their Japanese counterparts.

The conflict between Japan and South Korea is far from a major world crisis, but friction at this stage for either economy – and the global economy itself – can make for bad forex trading news if the conflict grows larger and unsettles the global market as a whole. Another major Japanese intervention will not only cause USD/JPY to rise, but will also drop JPY/KRW – and provoke a response from the South Koreans.

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