The real impact of JPY/KRW

Click here for the full Note and disclosures.

• JPY/KRW receives considerable attention for three reasons: it is believed to influence relative equity performance, it is highly cyclical and it is fundamentally misaligned (KRW is cheap to JPY).

• In fact the cross-rate is more significant for sectors than for aggregate markets. In sectors where two countries compete for exports (autos, electronics), correlations are much stronger than for broad indices or export figures

• KRW is still very undervalued vs JPY. A neutral level for JPY/KRW lies between 10-11. We expect JPY/KRW to range-trade near-term, but see downside over the year. Possible intervention by the BoK may impede the pace of depreciation but will not reverse trend.

ends