[Safe Asset Chronicles]② Unprecedented Yen Weakness... Yen Deposits Surge Nearly 1 Trillion Won in Ten Days

The won-yen exchange rate has hit an all-time low, leading to a surge in yen deposits.

On the 13th, the combined yen deposit balance at KB Kookmin, Shinhan, Hana, and Woori Banks (as of the 9th) reached 1.109 trillion yen (approximately 9.64 trillion won). This marks an increase of 100.5 billion yen (about 873.7 billion won) in just ten days since surpassing 1 trillion yen at the end of last month.

Yen deposits at the four major banks had been declining until April this year but have steadily increased since May. Especially as the yen depreciation peaked, deposits exceeded 1 trillion yen last month, and the surge continues into November. Compared to the yen deposit balance in April (578.9 billion yen), this is a 92% increase.

The surge in yen deposits is due to the historic yen depreciation. At the beginning of the year, the won-yen exchange rate was around 970 won per 100 yen, but on the 6th, it recorded 867.59 won, marking the first time in 15 years and 9 months that it fell into the 860 won range. The won-yen exchange rate dropping to the 860 won range is the first occurrence since 2008. The yen depreciation is caused by the Bank of Japan's (BOJ) monetary easing policy. At the monetary policy meeting held on the 31st of last month, the BOJ partially adjusted its Yield Curve Control (YCC) policy but maintained the overall framework of large-scale monetary easing. This weakened expectations that Japan would shift to monetary tightening, causing the yen to weaken further.

Considering that yen deposit products offer interest rates in the 0% range, the increase in yen deposits is interpreted as demand driven by foreign exchange gains based on the yen depreciation. Tourism and investment demand also play a role in boosting yen deposits. With the end of the COVID-19 pandemic and the gradual normalization of overseas travel, tourism to Japan is booming. According to the Ministry of Land, Infrastructure and Transport's Aviation Information Portal System, from October last year to September this year, 16,001,732 passengers traveled to Japan through eight international airports nationwide, including Incheon, Gimpo, Gimhae, and Jeju.

However, experts diagnose that the current yen value is undervalued. Jin Lee Ryu, a researcher at Hi Investment & Securities, stated, "Considering the economic conditions between Korea and Japan, the exchange rate in the 860-870 won range is somewhat excessive," and added, "It is expected to converge back to the 900 won range rather than decline further."