Korean currency depreciates against yen on back of Japan's rate hike

The Korean won depreciated against the Japanese yen after the Bank of Japan raised the country's interest rate to a 15-year high of 0.25 percent.

Bank of Japan Governor Kazuo Ueda speaks during a press conference after its policy meeting in Tokyo on Wednesday. [REUTERS/YONHAP]

With the Bank of Japan raising the country's interest rate to a 15-year high of 0.25 percent on Wednesday, the Korean currency depreciated against the yen.

At the same time, the won-dollar exchange rate dipped on the back of the strengthening of the yen against the greenback.

On Wednesday, the Japanese central bank raised its short-term policy rates from a range of 0 to 0.1 percent to 0.25 percent. The hike pushed up the country's base rate to the highest level since 2008.

The decision came four months after the Bank of Japan hiked its short-term policy rate for the first time in 17 years, putting an end to the negative interest rates that had been in place since 2016, in an effort to stimulate the economy.

Following the rate hike, the Korean won depreciated against the yen to the lowest level in about a month and a half, trading at 900.88 against 100 yen as of 3:30 p.m., compared to 894.23 the previous day.

The yen, which has been steeply appreciating since reaching a 37-year low against the dollar earlier this month at around 161, is expected to further strengthen amid growing expectation of U.S. rate cuts. The significant difference in the base rate level between the United States and Japan has been one of the driving factors behind the weak yen.

However, the appreciation is expected to be more gradual than initially anticipated, according to analysts.

“The Bank of Japan decided to increase the rate faster than expected, but the appreciation is not likely to be as rapid as the market worried, [...] as the central bank will continue its loosening monetary policy for a while,” said Park Sang-hyeon, an analyst at Hi Investment & Securities, suggesting that “the yen will continue to strengthen, albeit at a gradual pace.”

“Though the upward pressure driving the sharp appreciation of the yen has eased, the stronger yen [against the dollar] will continue to exert pressure on the Korean won to appreciate against the dollar at a somewhat limited level,” Park added.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]