Less than three months after a visit to Tokyo, South Korean housewife Chang Sun Ja is already planning her next Japanese trip to take advantage of the won’s surge to a five-year high against the yen.
“Next year, I’ll go to a hot spring in Hakone if the yen stays low,” Chang said in a Dec. 12 phone interview from her home in Busan, South Korea. On her last trip, the 56-year-old loaded up on gifts including Shiseido Co. Ltd. cosmetics and Sanrio Co. Ltd.’s Hello Kitty toys, “because the exchange rate was so good.”
The won has risen 47 percent versus the yen since the start of 2012, the biggest advance among 16 major currencies tracked by Bloomberg, as the number of Korean visitors to Japan jumped this year by 23 percent. Strategists predict it will gain about 5 percent over the next year to 9.671 per yen.
The currencies are being driven apart by the diverging prospects of Asia’s second- and fourth-biggest economies. While South Korea is on course to achieve a record $63 billion current-account surplus this year, Japan recorded its worst-ever shortfall in September and has embarked on an unprecedented stimulus program that’s debasing its currency.
“We are very bullish on Korea,” Adrian Mowat, the Hong Kong-based chief Asia and emerging-market strategist at JPMorgan Chase & Co., said in a Dec. 16 interview with Bloomberg Television. “I want to be in countries that can benefit from strong U.S. growth, yet have current-account surpluses and arguably an undervalued currency.”
The won touched 10.073 per yen today, its strongest level since September 2008, before trading at 10.175 at 9:38 a.m. in New York, data compiled by Bloomberg show.
South Korea’s currency has surged more than 20 percent versus its Japanese counterpart this year, marking a turnaround from a 40 percent decline in 2008 and slide to an all-time low of 16.42 the following March. It rose to a more than two-year high of 1,050.58 per dollar on Dec. 11.
Chang joined 2.27 million South Koreans who visited Japan in the first 11 months of 2013, the biggest number from a single nation and accounting for 24 percent of arrivals, according to the Japan National Tourist Organization.
The currency moves that are luring them across the Sea of Japan are being monitored by South Korea’s authorities. Yonhap Infomax cited Vice Finance Minister Choo Kyung Ho as saying today that the government will, if necessary, act to counter the won’s gains versus the yen.
“With Korea still the closest competitor to Japan in terms of the structure of its export basket, concerns about loss in competitiveness will likely drive a defensive stance by Korean authorities toward the won,” said Sameer Goel, the head of Asian foreign-exchange and rates research in Singapore at Deutsche Bank AG, the world’s biggest currency trader. “Nonetheless, the won should be able to outperform the yen.”
Goel predicts the won will climb to 9.75 per yen in the first half of next year, compared with the 10.096 median estimate of more than 20 analysts surveyed by Bloomberg News.
Gross domestic product in South Korea increased 1.1 percent in the third quarter from the previous three months, while Japanese growth slowed to a seasonally adjusted 0.3 percent. Japan had a current-account deficit of 59.3 billion yen ($570 million) in October following a record 125.2 billion-yen shortfall in September, after seasonal adjustment.
Global investors attracted by South Korea’s trade balance are pouring into the country’s assets and propping up the won. Foreigners bought 13 trillion won ($12.3 billion) more Korean shares than they sold on Seoul’s main bourse in the second half of 2013, the most in three years, according to exchange data.
Next year, some of the capital inflows may come from Japan, according to Robert Minikin, a senior strategist in Hong Kong at Standard Chartered Plc, which gets about three quarters of its earnings from Asia.
“It seems reasonable that Japanese pension funds will look to diversify into overseas assets,” Minikin, who sees the won appreciating to 9.27 yen by end-2014, said in a Dec. 17 phone interview. “South Korea, as a relatively liquid emerging bond market with strong economic fundamentals, will be a natural beneficiary.”
Overseas funds own just 18 percent of South Korea’s bonds, with central banks holding 41 percent, according to a July report from JPMorgan. This may protect the country from outflows as the U.S. tapers its unprecedented monetary stimulus program. The Washington-based Federal Reserve said at the end of its two-day policy meeting yesterday that it’s cutting monthly bond purchases to $75 billion from $85 billion.
Speculation the Bank of Japan will at the same time increase its debt buying contributed to the yen’s 17 percent drop versus the dollar this year. That’s the most since Japan’s currency weakened 19 percent in 1979.
Of 37 economists surveyed by Bloomberg last month, 19 expected the BOJ to extend monetary easing from April to June next year. Since this April, Japan has been buying more than 7 trillion yen of government bonds a month in an attempt to boost growth and end 15 years of crippling deflation.
“The risk is that you get more easing from the BOJ,” Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney, said in a Dec. 17 phone interview. “The South Korean won can strengthen further against the yen.”