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JPY: JPY/KRW Pushing To Multi Week Highs, Relative Policy Outlooks May Support

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JPY/KRW is pushing to fresh highs since late Oct in the pair. We last near near 9.1780. Since Oct though we have largely been in a 8.95 to 9.20 range. We are above all key EMAs, while the simple 200-day MA is back near 8.97, which has been a support point through Nov to date. The 50-day EMA is close to 9.0930. Upside focus is likely to rest on a test aback above 9.2000.

  • Relative yield/rate differentials are in favour of further upside in JPY/KRW. The chart below overlays this pair against the 2yr JP-SK swap rate differential. While we are still at -219bps, so firmly in favor of South Korea in an outright sense, the trend has shifted strongly in Japan's favour in recent months.  
  • Such trends may continue into early 2025, as the BoJ looks to adjust policy rates further, while the bias around the BoK outlook is skewed towards further cuts (albeit with an expected on hold outcome tomorrow).
  • Other factors into 2025 may also skew risks in the pair higher. Greater trade tensions/fresh tariffs from the US would be more likely to hurt won sentiment than the yen in a relative sense (although both currencies could weaken against the USD under such a scenario). 

Fig 1: JPY/KRW Versus Japan-South Korea 2yr Swap Rate Differential 

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JPY/KRW is pushing to fresh highs since late Oct in the pair. We last near near 9.1780. Since Oct though we have largely been in a 8.95 to 9.20 range. We are above all key EMAs, while the simple 200-day MA is back near 8.97, which has been a support point through Nov to date. The 50-day EMA is close to 9.0930. Upside focus is likely to rest on a test aback above 9.2000.

  • Relative yield/rate differentials are in favour of further upside in JPY/KRW. The chart below overlays this pair against the 2yr JP-SK swap rate differential. While we are still at -219bps, so firmly in favor of South Korea in an outright sense, the trend has shifted strongly in Japan's favour in recent months.  
  • Such trends may continue into early 2025, as the BoJ looks to adjust policy rates further, while the bias around the BoK outlook is skewed towards further cuts (albeit with an expected on hold outcome tomorrow).
  • Other factors into 2025 may also skew risks in the pair higher. Greater trade tensions/fresh tariffs from the US would be more likely to hurt won sentiment than the yen in a relative sense (although both currencies could weaken against the USD under such a scenario). 

Fig 1: JPY/KRW Versus Japan-South Korea 2yr Swap Rate Differential 

Keep reading...Show less