[Edaily Reporter Lee Jeong-yoon ] As the won-dollar exchange rate drops to the 1,410 won range, bringing the “breakthrough of the 1,400 won mark” within sight, market outlooks are mixed. Opinions are divided between those who predict the exchange rate will attempt to break into the 1,300-won range—driven by the redemption of SK Hynix American Depositary Receipts (ADRs) and the continued strength of the yen—and those who forecast a rebound to the mid-1,400-won range after mid-August, when the large-scale supply of dollars is expected to subside.

Experts believe that the extent to which supply-and-demand factors—such as the redemption of SK Hynix ADRs and the trend of the yen—persist will be a turning point for the future exchange rate.

◇ SK Hynix Currency Conversion Still Underway… Speculation Grows That Exchange Rate Will Enter the 1,300 Won Range

According to the Seoul Foreign Exchange Brokerage on the 6th, the exchange rate closed at 1,423.8 won as of the day’s midday session (3:30 p.m.), down 0.7 won from the previous trading day. During the session, it fell as low as 1,414.5 won, marking the lowest intraday level in about 10 months since October 2 of last year (1,399.5 won).

While the dollar’s weakness was partly due to easing uncertainty in the Middle East—such as the reopening of the Strait of Hormuz—the recent decline in the exchange rate has primarily been driven by SK Hynix’s dollar conversion and the yen’s sharp appreciation. Those who expect the exchange rate to fall further are placing weight on the likelihood that SK Hynix’s currency conversion and the yen’s strength will continue for the time being.

Choi Ye-chan, an analyst at Sangsangin Securities, stated, “The won is structurally the currency most closely correlated with the yen,” adding, “In the second half of the year, conditions for won appreciation may be temporarily met as the current account surplus, inclusion in the WGBI, SK Hynix’s foreign exchange transactions, and the return of foreign capital all converge.” He predicted, “If the yen continues to strengthen, the exchange rate could test the 1,300 won range during the third quarter.”

Park Sang-hyun, an analyst at iM Securities, also noted, “Considering the U.S.’s stance of active intervention in the foreign exchange market and the improvement in domestic dollar supply and demand, there is a high likelihood of further depreciation in the exchange rate,” adding, “Given the strengthened correlation between the won and the yen, if the dollar-yen exchange rate falls below 155 yen, the won-dollar exchange rate could also enter the 1,300 won range.”

On the other hand, some analysts suggest that the recent decline in the exchange rate is due to temporary supply-and-demand factors. Choi Kyu-ho, an analyst at Hanwha Investment & Securities, estimated that of the $26.5 billion raised by SK Hynix through its ADRs, the actual amount converted into won would be between $13 billion and $16.5 billion. He noted, “It is unlikely that the entire amount will be converted,” adding, “The impact of the exchange rate decline is estimated at around 45 to 57 won. While the supply of dollars may remain dominant through the early to mid-part of this month, subsequent rapid declines in additional dollar supply could push the rate back to the mid-1,400 won range or higher.”

He continued, “Supply and demand dynamics, as well as intervention, will eventually come to an end,” predicting, “Once the exchange volume is exhausted, demand for dollars from importers’ payments and overseas investments will resurface, shifting the focus of the exchange rate from supply and demand to fundamentals.”

◇How Long Will U.S.-Japan Joint Intervention Last? Mixed Outlook for the Yen

How long the yen’s strength will last is also a key variable for the exchange rate. At the end of last month, the U.S. and Japan engaged in joint intervention to defend the yen for the first time since 1998, causing the dollar-yen exchange rate to plummet from around 164 yen to the 155 yen range. Although the rate has since stabilized around 157 yen, market views are divided: some expect the yen’s strength to continue, reflecting the possibility of further joint intervention and a rate hike by the Bank of Japan (BOJ), while others predict that the effects of intervention will be short-lived, as structural factors driving yen weakness—such as the U.S.-Japan interest rate differential and Japan’s fiscal burden—remain in place.

Oh Jae-young, an analyst at KB Securities, said, “While the effect of U.S.-Japan joint intervention may be strong, a shift in the trend will require changes in the macroeconomic environment, such as a narrowing of the U.S.-Japan interest rate differential.”

In contrast, Bank of America (BofA) lowered its year-end dollar-yen exchange rate forecast to 149 yen, reflecting the joint intervention and the possibility of further tightening by the Bank of Japan (BOJ). BofA assessed, “Recent foreign exchange market intervention strongly supports the outlook for a stronger yen,” adding, “In the short term, the likelihood that the dollar-yen exchange rate will fall below 155 yen has increased.”

Cha Young-hoo, an analyst at Eugene Investment & Securities, said, “Given that expectations for a narrowing of the U.S.-Japan interest rate differential are unlikely to strengthen rapidly due to the Japanese government and the BOJ’s preference for low interest rates, the yen’s appreciation resulting from joint intervention will likely be short-lived.” He added, “Downward pressure on the exchange rate will continue through August, but as capital outflows driven by domestic investors’ overseas investments come back into focus, the rate is expected to exceed 1,480 won by year-end.”