USD-KRW tests 1,480 on capital outflows amid Japan rate-hike fears

The dollar index slipped 0.16 points to 97.79 following higher-than-expected U.S. jobless data. Yet the won weakened sharply, underscoring its vulnerability to shifts in global capital flows rather than dollar strength alone.

Foreign investors were net sellers of 254 billion won ($172 million) worth of KOSPI shares, while domestic institutions bought a net 184 billion won, a move widely seen as led by the National Pension Service (NPS) under government guidance to shore up the currency through foreign-exchange hedging.

Earlier this week, South Korea’s foreign-exchange authorities extended a $65 billion currency-swap arrangement with the NPS through the end of 2026, signaling official resolve to stabilize the won amid rising external risks.

The defense, however, appeared insufficient against growing volatility in global markets. Still, suggesting dollar-selling intervention by authorities, the dollar slipped back to 1,478.90 won as of 2:35 p.m.

Foreigners also dumped 257 billion won worth of KOSDAQ shares, pointing to a broader pullback reminiscent of the “yen shock” seen in August, as investors brace for a second rate hike by the BOJ this year.

The Japanese central bank is widely expected to raise its policy rate by 25 basis points to 0.75 percent at Friday’s meeting, up from 0.50 percent, which would place borrowing costs at their highest level in roughly three decades.

A BOJ tightening is feared to unwind the yen carry trade — a strategy that borrows in ultra-low-yielding yen to invest in higher-return assets abroad — a key source of funding for emerging markets including South Korea. Morgan Stanley estimates that about $500 billion in yen-funded carry positions remain outstanding globally.