downloadbingo| Real hammer! "Currency War" breaks out!

The latest data are released.DownloadbingoThe "currency war" began.

According to the latest data released by the Bank of Korea on May 7, local time, as of the end of April this year, South Korea's foreign exchange reserves stood at 4132.Downloadbingo60 million US dollars, a decrease of 59. 5% from the previous month.Downloadbingo90 billion U.S. dollars, the biggest drop in 19 months. The Bank of Korea said the decline in foreign exchange reserves was due to market stabilization measures.

It means that the South Korean authorities have started a "currency war". Overseas investors believe that the Bank of Korea has at least used more than $3 billion in foreign exchange reserves to intervene in the foreign exchange market to stabilize the won.

In fact, as the dollar continues to strengthen, a number of central banks have intervened directly in the market, among which the actions of the Japanese authorities have attracted much attention. On May 7, local time, Japanese Foreign Exchange Minister Makoto Kanda said that Japan may have to take action against disorderly and speculative foreign exchange fluctuations. Japanese bank accounts and money brokers predict that the intervention funds spent by the Japanese authorities in the last two operations could be as high as 9 trillion yen (420 billion yuan).

The "currency War" begins

South Korea's foreign exchange reserves stood at $413.26 billion at the end of April, down $5.99 billion from $419.25 billion last month and the biggest drop in 19 months, according to the latest data released by the Bank of Korea on May 7.

The Bank of Korea said the decline in foreign exchange reserves was due to market stabilisation measures, including the use of currency swap lines with South Korean pension funds, as well as a reduction in foreign exchange deposits by financial institutions and a decline in the translation value of non-dollar assets.

It means that the South Korean authorities have started a "currency war", and the price is quite heavy.

Since the beginning of this year, the South Korean won has suffered tremendous depreciation pressure in the context of a strong dollar raid. In mid-April, the dollar broke through the 1400 mark against the South Korean won, its highest level since late 2022.

So far, the South Korean won has depreciated by more than 5% against the US dollar this year, making it the third-largest currency in Asia, second only to the Japanese yen and the Thai baht.

In the face of the sharp devaluation of the South Korean won, the South Korean authorities severely warned against excessive exchange rate fluctuations and expressed their intention to actively intervene in the devaluation of the South Korean won.

South Korea's Ministry of Planning, the Ministry of Finance and the Bank of Korea jointly issued a notice saying that the foreign exchange authorities are closely watching the exchange rate trend and the supply and demand dynamics of the foreign exchange market with special vigilance. Excessive unilateral fluctuations in the foreign exchange market are not desirable for the South Korean economy.

This is the first time that the two institutions have jointly conducted "oral intervention" in the foreign exchange market in 22 months.

Under the intervention of the South Korean authorities, the South Korean won quietly regained the 1400 round mark against the dollar in late April and hovered around 1360 against the dollar as of May 7.

Overseas investors believe that the Bank of Korea has at least used more than $3 billion in foreign exchange reserves to intervene in the foreign exchange market to stabilize the won, and the time for the Bank of Korea to intervene in the foreign exchange market is likely after a joint verbal warning from the Ministry of Finance and the Bank of Korea to intervene in the foreign exchange market.

Why all of a sudden?

The reason why South Korea is determined to start a "currency war" is that the devaluation of the South Korean won has threatened South Korea's economy and stock market.

As a major exporter in the world, South Korea's exports depend to a large extent on imports of raw materials, which are rising rapidly with the depreciation of the won.

Cho Gyeong Lyeob, a senior researcher at the Korea Economic Research Institute, said that enterprise groups that are borrowing money overseas to expand their facilities, as well as steel, chemical, energy importers and airlines, have been adversely affected. The negative impact of the sharp devaluation of the Korean won is greater than the positive impact.

Eugene Investment Co. Lee Jung-hoon, an economist, said the data showed that South Korea's exports did not grow because of the weak South Korean won.

The rapid rise in import prices of raw materials could also lead to hyperinflation in South Korea, which is clearly a situation that the South Korean authorities do not want to see.

In addition, the devaluation of the Korean won also has a negative impact on the South Korean stock market. The devaluation of the Korean won not only makes South Korean enterprises encounter greater operating pressure, but also may cause foreign investors to withdraw from the South Korean stock market, which is negative for the South Korean stock market.

A weaker won tends to cause stock prices to fall in the South Korean market, according to Bloomberg data. Investors are also worried that the rapid decline of the won will destabilize financial markets.

"whether the South Korean authorities continue to intervene in the foreign exchange market alone, or in conjunction with governments such as Japan, is one of the focus of the current market." A foreign exchange broker pointed out that at present, as long as the Federal Reserve does not pull the trigger for interest rate cuts, the price paid by Asia-Pacific countries to intervene in the foreign exchange market will be quite high, even if they use tens of billions of dollars in foreign exchange reserves to intervene in the foreign exchange market. it may not be able to reverse the depreciation of its own currency in the face of a strong dollar.

Big moves in Japan

In fact, as the US dollar continues to strengthen, the currencies of many countries are facing depreciation pressure, and a number of central banks have intervened directly in the market, among which the actions of the Japanese authorities have attracted much attention.

On May 7, local time, Japanese Foreign Exchange Minister Makoto Kanda said that Japan may have to take action against disorderly and speculative foreign exchange fluctuations.

"when there is excessive volatility in the foreign exchange market or disorderly volatility caused by speculation, the government may have to take appropriate action when the market does not function properly," he said. We will continue to adopt the same firm policy as in the past. "

In fact, the Japanese authorities may have intervened in the foreign exchange market directly by buying yen. Japanese authorities could spend as much as 9 trillion yen (420 billion yuan) on intervention in the last two operations, according to a comparison between Japanese bank accounts and money brokers.

As a result, the yen rebounded sharply, with the dollar falling back to 151.86 yen from a 34-year high of 160.245. So far, the yen is at 154.50 yen against the dollar, down nearly 9 per cent during the year.

According to the usual practice, the Japanese Ministry of Finance releases information on whether there is foreign exchange intervention in the most recent month at the end of each month. Therefore, the specific scale of Japanese authorities' intervention in the market will not be officially announced until the end of May.

Yellen, the US Treasury secretary, said the yen had "indeed fluctuated considerably in a relatively short period of time", adding that "we expect these interventions to be rare and will be negotiated."

After this statement, some analysts pointed out that given the limited US dollar cash reserves available in Japan, this "currency defence" may be more difficult, and the yen is expected to fall back to the 160 line against the dollar.

Investment bank analysts such as Royal Bank of Canada Capital Markets and Bank of America all expect that the huge US-Japan interest rate spreads and trade deficits will continue to bring downward pressure on the yen, and the yen may fall back to 160 against the US dollar.

Shusuke Yamada, head of Japan currency and interest rate strategy at Bank of America Japan, said that considering that the Federal Reserve may not show any signs of cutting interest rates before September this year, pressure on the yen to weaken will continue for more than a quarter.

In addition, in the face of the violent devaluation of the Indonesian rupiah, the Indonesian central bank has taken urgent action. In late April this year, the Indonesian central bank unexpectedly raised interest rates by 25 basis points to curb the Indonesian rupiah's continued devaluation.

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Proofread: Li Lingfeng

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