![An employee at Hana Bank's counterfeit response center in Jung-gu, Seoul, holds up Japanese yen banknotes. [Yonhap]](https://wimg.heraldcorp.com/news/cms/2026/08/13/rcv.YNA.20260729.PYH2026072905970001300_P1.jpg)
The yen has resumed its slide despite a rare joint market intervention by the United States and Japan to defend the currency, pulling the won-yen exchange rate lower once again. Foreign exchange authorities see little prospect of a sustained yen rebound, citing limited room for further intervention and structural headwinds including Japan's weak economic fundamentals and expansionary fiscal stance. The cheaper yen is also expected to fuel further demand among South Koreans for travel to Japan.
According to the Bank of Korea, the won-yen rate stood at 887.8 won on Thursday, down 0.6 won from the previous session's 888.4 won — the lowest level since July 23, 2024, when it hit 884.1 won.
The won-yen rate had hovered around 950 won during the first half of this year, when the won and yen moved largely in tandem. In July, however, a weakening yen and a strengthening won converged to push the rate sharply lower. From 963.7 won on July 3, the rate tumbled 7.9 percent in roughly a month. A joint US-Japan intervention briefly lifted the yen, pushing the won-yen rate back up to 910.7 won on Aug. 3, but the effect faded quickly and the rate has since resumed its decline.
The yen-dollar rate climbed to 163.9 yen on July 29, its highest level in about 40 years. Following the joint intervention, it fell to 157.3 yen on Aug. 4, but by Wednesday had risen again to 159.3 yen, approaching the 160-yen threshold.
The yen's renewed weakness despite large-scale intervention reflects Japan's economic fundamentals, which offer little support for a stronger currency. Market participants see virtually no factor capable of lifting the yen in the near term other than additional intervention by US and Japanese authorities.
Analysts say the yen's structural weakness is unlikely to reverse as long as the Takaichi cabinet maintains its expansionary fiscal stance. The cabinet has declared fiscal year 2027 the inaugural year of "responsible active fiscal policy" and pledged to invest more than 370 trillion yen ($2.32 trillion) in areas including AI through 2040. Expanded government spending typically leads to higher government bond issuance, which in turn exerts downward pressure on the currency.
The gap between US and Japanese benchmark interest rates is also weighing on the yen. The Bank of Japan raised its benchmark rate from 0.75 percent to 1 percent in June — its highest level since 1995 — but the spread with the US rate of 3.5 to 3.75 percent still stands at 2.75 percentage points at the upper end. The Bank of Japan is not expected to tighten aggressively from here. "Even if the Bank of Japan raises rates further, it would likely be only once or twice — not enough to meaningfully narrow the gap," said Lee Min-hyuk, chief economist at KB Kookmin Bank. Baek Seok-hyun, an economist at Shinhan Bank, added that a rate increase from 1 percent to 1.25 percent represents a proportionally far larger move than a rise from 3 percent to 3.25 percent. "The burden from rising interest costs will inevitably be significant," he said.
Japan's diminished investment appeal, rooted in its low growth potential, is another underlying driver of the weak yen. Japan's potential growth rate is currently estimated at below 1 percent. Despite the Takaichi cabinet's push to stimulate the economy, structural constraints are seen as too deep to generate a meaningful acceleration. In a report last year titled "Lessons to be Learned from the Japanese Economy," the Bank of Korea found that Japan's potential growth rate had declined after the collapse of its asset bubble, as falling birth rates and an aging population reduced labor input and a delayed digital transition held back productivity gains. Japan is also widely seen as having fallen behind Europe in adapting its industries to AI, one of the key drivers of the current global economy.
In the near term, the trajectory of the won-yen rate is likely to hinge on the extent of further US-Japan market intervention. "If the yen-dollar rate hits 160 again, the two governments could intervene more forcefully than last time," Lee said. "There is a real possibility the yen will see significant volatility for now."
At the same time, analysts doubt that authorities can repeat the scale of intervention seen at the end of last month. A senior foreign exchange authority official questioned whether the timing of the last intervention was well-chosen. "Timing is everything in market intervention, and I have doubts about whether the last one was appropriate in that regard," the official said. "It will not be easy to carry out another intervention of that scale."
Whether the won's recent strength holds will also shape the won-yen rate going forward. "If the won continues to strengthen, the won-yen rate can be seen as trending lower," Baek said, though he cautioned against reading too much into a short window. "The won and yen moved almost in lockstep through June, so it is premature to call a sustained decline based on just about a month and a half of data," he said.
A prolonged period of yen weakness is expected to reduce the cost of currency exchange and further boost Japanese travel demand among South Koreans. According to Incheon International Airport, the cumulative number of South Korean departures to Japan through July reached 6.08 million, up 13.3 percent from the same period last year.
If Japan-bound travel demand continues to grow in the second half of the year, South Korea's travel account deficit with Japan could widen further. According to the Bank of Korea, the deficit on Japan travel last year reached $5.71 billion, the largest since records began in 1998. The Japan travel account posted surpluses of $368.7 million in 2020 and $129.9 million in 2021 during the COVID-19 pandemic, but swung to a deficit of $575.7 million in 2022 and has widened every year since.
kimstar@heraldcorp.com
