Unprecedented Exchange Rates and a Glimpse into Fintech.

Despite the ongoing unprecedented "yen surge" in Japan, recent data reveals a decrease in yen deposits. While yen deposits themselves have been relatively stable, the decrease in converted yen deposits can be attributed to the recent strengthening of the US dollar.

 

While the popularity of yen deposits is on the rise amid the yen surge phenomenon, the balance of yen deposits fluctuates based on exchange rate movements between the yen and the dollar.

 

According to the Bank of Korea's "Trends in Foreign Currency Deposits of Residents as of August 2023," the balance of residents' yen deposits stood at $8.28 billion as of the end of August. This represents a decrease of $30 million (0.4%) compared to the previous month ($8.31 billion).

 

However, this decrease is not due to reduced demand for yen deposits. The Bank of Korea attributed the decrease in yen deposits to "the impact of a decrease in the amount converted to yen due to the strengthening of the US dollar."

 

In fact, the US dollar saw an increase of about 1.7% in the previous month. However, yen deposits decreased by only 0.4% when converted into US dollars. Therefore, while the net deposits in yen remained stable, the balance of yen deposits decreased when converted into US dollars.

 

One of the reasons for the popularity of yen deposits is the recent depreciation of the Korean won against the yen, reaching the lowest level since June 2015 (Korean won strengthening).

 

The exchange rate of the Korean won to the yen (based on 100 yen) in the Seoul foreign exchange market has dropped by about 80 won over the past four months, averaging 914.06 won in the previous month. This is a significantly lower level compared to the average in April (990.69 won).

 

The recent weakening of the yen is primarily attributed to the Bank of Japan's (BOJ) large-scale monetary easing policy.

 

However, opinions are divided on how long the yen's weakness will persist. Haruhiko Kuroda, the Governor of the Bank of Japan, recently mentioned in an interview, "If there is confidence in achieving the inflation target, ending the 'negative interest rate' could be an option." This statement reflects the uncertainty regarding the future direction of the Bank of Japan's policies.

 

On the other hand, some market analysts anticipate that the yen's weakness will continue. Goldman Sachs, a global investment bank, recently predicted in an investment memo that "the USD/JPY exchange rate will trade in the 145 yen range over the next three years," expecting the yen to remain strong.

 

Meanwhile, the total balance of foreign currency deposits held by residents decreased by $5.9 billion compared to the previous month. This marks a return to a declining trend after four months of increases.

 

Dollar deposits decreased by $4.82 billion, totaling $83.04 billion, while euro deposits decreased by $790 million, amounting to $5.23 billion. The Bank of Korea explained that this decrease was influenced by factors such as payment of import bills, overseas investments by companies, and a decrease in deposit balances of securities firms.

 

While the popularity of yen deposits is on the rise amid the yen surge phenomenon, the balance of yen deposits fluctuates based on exchange rate movements between the yen and the dollar. Whether the yen's weakness will persist or if changes in the policies of the Bank of Japan will lead to a stronger yen remains a topic of ongoing interest. Therefore, it is important to closely monitor the movements in the foreign exchange market and consider effective fintech strategies.