On the 19th, the won-dollar exchange rate opened down by nearly 3 won ahead of the Bank of Japan (BOJ) policy rate decision.
In the Seoul foreign exchange market that day, the won-dollar exchange rate began trading at 1,475.5 won, down 2.8 won from the prior session's weekly transaction closing price at 3:30 p.m. Compared with the pre-dawn close, it was down 2.4 won.
The exchange rate faced growing downward pressure ahead of the BOJ's monetary policy meeting results scheduled around noon. The market sees a high chance that the BOJ will raise the policy rate to 0.75% from the current 0.5% annually. If a 0.75% hike is implemented, it would be the highest level in about 30 years since Sept. 1995.
The won tends to move in tandem with the yen, and when the yen strengthens, the won-dollar rate tends to fall. On Jan. 24, when the BOJ previously raised the policy rate to 0.5%, the exchange rate also followed the stronger yen and closed at 1,431.3 won, down 6 won from the previous day.
However, some note the decline could be limited as foreign investors continue to sell domestic stocks. As of 9:14 a.m., foreigners were net sellers of 63.7 billion won in shares on the Korea Composite Stock Price Index (KOSPI) market. Foreign selling increases demand to convert won into dollars, acting as a factor pushing the exchange rate higher.
Min Kyung-won of Woori Bank said the day's exchange rate would have a lower bound of 1,472 won and an upper bound of 1,480 won. Min said, "With the possibility of a BOJ rate hike intersecting with onshore dollar demand, the exchange rate will likely move within a limited range," adding, "There is a possibility of a slight upward trend."