In the last year, the Korean Won has soared against the USD, while the USD, in turn, has appreciated significantly against the Japanese Yen. In line with the laws of triangular arbitrage, the Korean Won has pummeled the Japanese Yen, appreciating over 30% in less than two years. As a result, Korean exporters are having extreme difficulty competing with their Japanese counterparts. While economic fundamentals still seem to support Won strength, a Japanese trade surplus should soon force the Yen back up. In addition, we could see South Korea’s Central Bank intervene in forex markets in order to hold down its currency. The Korean Herald reports:

Along with the wider liberalization of the foreign currency market, a shift in the fresh global capital inflow into the European Union and Japan away from the emerging markets is expected to put downward pressure on the won next year.

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