US Treasury Secretary: "If the Yen Weakens, the Won Will Follow"... Support Growing for Won Stabilization?

Warning of Potential Spread of Weakness to Other Asian Currencies

Scott Bessent, US Treasury Secretary, has warned that the weakness of the Japanese yen could lead to a decline in other Asian currencies, including the Korean won. He explained that the reason behind the recent joint intervention by the United States and Japan in the foreign exchange market to support the yen was concerns that a rapid fall in the yen could trigger competitive devaluation in the region and create instability in financial markets.

Photo of U.S. Treasury Secretary Scott Bessent and Trade Representative Jamison Greer at a press conference. Yonhap News Agency

In an interview with CNBC on August 4 (local time), Secretary Bessent stated, "A stable yen is extremely important not just for the United States, but for the entire region," adding, "If the yen weakens significantly, other currencies will follow." He went on to say, "We have witnessed excessive volatility in the Korean won," and noted that many people also believe the Chinese yuan is undervalued.

Secretary Bessent’s remarks came in the context of explaining the background for last month's joint intervention by the United States and Japan to buy yen and sell dollars. It has been about 30 years since the United States joined Japan in an effort to support the yen.

Other foreign media outlets reported that Secretary Bessent expressed concerns that a significantly undervalued yen could destabilize the broader currency market and trigger harmful competitive devaluations among nations. This means the depreciation of the yen is not just an issue for Japan but could spread across Asian currency markets.

The Wall Street Journal (WSJ) also analyzed that the United States is concerned that if yen weakness persists, other Asian currencies such as the Korean won and the Indian rupee could also decline. If neighboring countries allow their own currencies to weaken in order to maintain export competitiveness against Japanese companies, it could lead to a chain reaction of devaluations across Asia.

Secretary Bessent stated, "If the yen is significantly undervalued, other economic issues and competitive devaluations arise," adding, "This is unhealthy." He stressed that a stable yen is important not only for Japan but also for the United States, and stated he would "take necessary measures" to support Japan’s efforts to stabilize its currency.

Simultaneous Worsening of Won Weakness and Volatility

Recently, the Korean won has generally moved in the same direction as the yen but has shown relatively large volatility. The KRW/USD exchange rate rose from 1,288.0 won per dollar at the end of 2023 to 1,472.5 won per dollar at the end of 2024.

In 2024, the annual depreciation of the Korean won against the dollar was 12.5%, outpacing the yen's 10.6% depreciation. In some periods this year, the won depreciated more sharply than the yen, indicating increased volatility.

The US and Korean governments have already reached a consensus that excessive volatility in the won is undesirable. Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol and Secretary Bessent agreed during their talks in April to continue discussions related to the foreign exchange market, sharing the view that excessive volatility in the won is not desirable.

Secretary Bessent’s remarks suggest that the United States is now watching the impact of the yen's sharp fall on the Korean won. However, it would be an overinterpretation to say that these comments constitute a direct request by the US for won appreciation or an explicit public endorsement of market intervention by Korean authorities.

Yen Defense with the US Treasuries Market in Mind

Some analysts say US intervention to support the yen is also motivated by considerations for stability in the US Treasury market. If Japan were to sell a large amount of its US Treasury holdings to defend the yen's value, long-term US interest rates could rise. Japan is a major creditor nation, holding more than 1 trillion US dollars in US Treasuries.

Both The Wall Street Journal (WSJ) and Financial Times (FT) focus on the possibility of Japan using the Federal Reserve’s FIMA Repo facility, which allows foreign and international monetary authorities to raise dollars by leveraging US Treasuries as collateral, instead of selling Treasuries directly on the market.

Secretary Bessent supported the idea of Japan using the FIMA Repo facility to borrow dollars with US Treasuries as collateral, and stated that it is necessary to expand the per-country usage limit, which currently stands at 60 billion dollars. This is seen as a move to prevent US Treasuries from flooding the market and pushing up US interest rates during Japan’s efforts to defend the yen.

Meanwhile, after Secretary Bessent’s comments were reported, the won/dollar exchange rate fell to 1,428 won in the Seoul foreign exchange market. This is down by 4.5 won compared to the 3:30 p.m. reference price from the previous day.

This content was produced with the assistance of AI translation services.