Weak yen hits a record low against Korean won

As a result of the strong Korean won in the foreign currency market, the Japanese yen sank below the 800-won mark in seven years and two months. The U.S. dollar also fell below the 1,070-won mark, hitting this year’s record low.

According to Korea Exchange Bank, the Korean won stood at 898.56 won per yen as of 3 p.m. Tuesday, down by 3.73 won (the value of the won appreciated) from Monday (902.29 won). The Japanese yen was once 896 won on Tuesday morning. As the won and the yen are not directly traded in the foreign exchange market, they are calculated based on an arbitrage exchange rate using the KRW/USD exchange rate and the JPY/USD exchange rate.

It is the first time that the KRW/JPY exchange rate fell below the 900-won mark since Feb. 29, 2008 (895.57 won). The won-yen rate has plunged 40.6 percent in less than three years from June 4, 2012 (1,512.28 won as of 3 p.m.).

The U.S. dollar fell against the won to close at 1,070.0 won on Tuesday, down by 3.0 won from Monday. The KRW/USD exchange rate fell to 1,069 won, but it managed to close at 1,070 won because of a possible intervention in the currency market by the authorities.

The value of the won continues to rise against the yen because Japan continues releasing money through Abenomics and money from Europe and Japan keeps flowing into the Korean stock market. This leads to the rise in the relative value of the Korean won. Experts say that Korean exporters will see narrower margins because Japanese companies seriously began to cut the prices of export items on the back of the weak yen.

The stock prices of large exporters such as Samsung Electronics (-2.08 percent), Hyundai Motor (-1.99 percent) and Kia Motors (-3.47 percent) fell significantly due to the concerns over the weak yen.

jarrett@donga.com