Just last month, a substantial amount of approximately 11 trillion won (US$8.14 billion) in Korean won was withdrawn from the U.S. dollar deposits of the top five domestic commercial banks. It is analyzed that people exchanged dollars for won to capitalize on exchange rate differentials with the won-to-U.S. dollar exchange rate reaching its highest level this year. On the other hand, yen deposit balances have exceeded 1 trillion yen (US$6.68 billion), driven by exchange rate differentials and travel demand, as the historical yen depreciation trend continues.
According to financial sources on Oct. 16, the U.S. dollar deposit balances of the top five domestic banks – KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup – decreased by 15.26 percent, or US$8.11 billion, to US$53.17 billion at the end of last month from US$61.29 billion a month earlier. In terms of won, this is the largest decrease this year, amounting to approximately 10.86 trillion won based on an exchange rate of 1,339 won per U.S. dollar.
Kim Dae-soo, the head of the private banking team at Shinhan PWM Yeouido Center, stated, “The U.S. Federal Reserve (Fed) delayed the timing of interest rate cuts on the 20th of last month, later than initially expected. However, the perception that it might be acceptable to switch to the Korean won has become prevalent due to diminishing attractiveness for further investment.”
In fact, the U.S. dollar deposit balances this year have shown significant fluctuations depending on the exchange rate. For instance, in February of this year, when the won-to-U.S. dollar exchange rate surged by 90.7 won within a month, the dollar deposit balance recorded US$62.85 billion, decreasing by around U$5.9 billion in just one month. Even in May, when the won-to-U.S. dollar exchange rate crossed the 1,340 won mark and set a new record at the time, the U.S. dollar deposit stood at US$60.75 billion, showing a decline of approximately US$6.7 billion compared to the previous month.
However, the recent conflict between Israel and the Palestinian militant group Hamas has raised expectations that the U.S. dollar, considered a safe haven, will appreciate further. This outlook has led to increased fluctuations in U.S. dollar deposit balances. As of Oct. 10, the U.S. dollar deposit balance stood at US$56.87 billion, showing an increase of approximately US$3.7 billion compared to the end of the previous month.
Unlike fluctuating U.S. dollar deposits, yen deposits have shown a consistent upward trend since the second quarter. The total yen deposit balance in the top five banks reached 1.37 trillion yen as of Oct. 10. The balance of yen deposits in these banks declined for three consecutive months from 758.32 billion yen in January to 597.76 billion yen in April. However, it has been on the rise for the past five months, surpassing the 1 trillion yen mark for the first time this year in the previous month, recording 1.03 trillion yen.
This is because the U.S. tightening policy has been prolonged, and the yen continues to weaken with the addition of the Bank of Japan’s (BOJ) monetary easing policy. Consequently, as the yen depreciation trend extends, there is demand from those looking to capitalize on exchange rate differentials by purchasing at the low point.
Indeed, the yen-to-U.S. dollar exchange rate surged to 150.16 yen per U.S. dollar during trading on Oct. 3, breaking through the psychological resistance level of 150 yen for the first time in a year. The won-to-yen exchange rate also showed an upward trend, crossing the 1,000 won mark back in early April. However, in June, it dropped to the early 900 won range, and in the middle of last month, it even recorded four consecutive trading days in the 800 won range.
A banking official said, “The won-to-yen exchange rate at 800 won per 100 yen is an unprecedented yen depreciation trend not seen since 2015, which has led to increasing demand for tying funds to the yen for future exchange rate differentials. With a significant increase in South Korean travelers to Japan since the first half of this year, yen deposit balances are on the rise.”