S. Korea, Japan pledge joint action on currency depreciation amid strong dollar

South Korea’s Deputy Prime Minister Choi Sang-mok held the 9th Korea-Japan Finance Ministerial Dialogue with Japanese Finance Minister Shunichi Suzuki at the Government Complex-Seoul on June 25. [Photo by Lee Chung-woo]

Amid the strengthening of the U.S. dollar, the Korean won and Japanese yen have substantially depreciated, leading economic leaders from South Korea and Japan to issue a joint statement vowing to address the decline in their currencies.

The two nations expressed their commitment to stabilizing the market through verbal interventions and indicated the potential expansion of their currency swap agreement, currently valued at $10 billion.

On Tuesday, Choi Sang-mok, South Korea’s Deputy Prime Minister and Minister of Economy and Finance, held the 9th Finance Ministers’ Meeting with Shunichi Suzuki, Japan’s Finance Minister, at the Government Complex in Seoul. This marked the second consecutive year that the top economic officials from both countries have convened.

The primary focus of the meeting was on enhancing mutual cooperation to strengthen foreign exchange and financial safety nets. In a joint press release, the ministers acknowledged the rapid recovery of the global and regional economies but also highlighted ongoing uncertainties, including geopolitical tensions, potential slowdowns in major trading partners’ growth, and increased volatility in foreign exchange markets.

The ministers particularly emphasized their shared concern over the rapid depreciation of their currencies and reaffirmed their commitment to taking appropriate measures. They also hinted at the possibility of strengthening the currency swap agreement reestablished last year. The ministers agreed on the importance of the currency swap and the need to discuss potential improvements if necessary.

A currency swap agreement allows countries to exchange currencies and access each other’s foreign exchange reserves during times of crisis, acting as a financial safety net. The renewed commitment to this mechanism underscores the urgency with which both nations are addressing the current economic challenges posed by the strong dollar.

The decision to present a united front comes as the depreciation of the Korean won and Japanese yen has accelerated. The won closed at 1,387.5 per dollar on Tuesday, a slight increase of 1.5 won from the previous trading day, but its recent decline has been pronounced. The won has neared the psychological threshold of 1,400 per dollar, and the yen has been hovering around 160 yen per dollar, indicating significant pressure on both currencies.

In terms of purchasing power, both currencies have seen substantial declines. According to the Bank for International Settlements (BIS), the real effective exchange rate of the won fell by 1.4 percent from January to May this year, marking the fifth-largest drop among the 38 OECD countries. During the same period, the yen plummeted by 5.4 percent, reaching a historic low of 68.65 in May.

Japan also expressed its willingness to support South Korea as it approaches its entry into the “club of advanced government bonds” this September. The meeting underscored the mutual recognition of the need to enhance bilateral investment.