Over the past three months, the won, yen and yuan grew more expensive against the dollar, despite US rates staying high. Usually, a high-rate country's money becomes more expensive. This time, the opposite happened. Part of the movement cannot be explained by rates. We examine its source, what persistence would mean for the world and five countries, and who benefits. The conclusion first: Intent cannot be proved. But beneficiaries can be counted.
The won's 13.6% uses the June 5 overnight peak of KRW 1,562.47 (the highest daily close was KRW 1,554 on June 8, implying 13.2%). The yen uses the same period; the yuan starts at the year's beginning. We state each percentage's basis because dates change the result. CNY 6.72 is the market rate; the PBOC's daily fixing is weaker at 6.78. Section 06 examines that gap.
This year, foreign investors sold KRW 166 trillion of Korean stocks and left. If foreign investors sold stocks, converted proceeds into dollars and exited, the won should cheapen. Instead it grew dearer, because others sold dollars. The table names them.
| Who | What they did | Scale |
|---|---|---|
| Exporters | Converted dollar holdings into won. Export proceeds were sold at month-ends, including heavy supply on August 31 (KB daily FX report). | Undisclosed★ |
| National Pension Service (NPS) | Resumed hedging overseas assets on June 9—contracts limiting losses when the dollar cheapens. Hedging has the effect of selling dollars. | Undisclosed |
| Foreign bond investors | Bought Korean government bonds for World Government Bond Index inclusion. They sold stocks but bought bonds. | KRW 30.7 trillion through June 26; Japanese investors about KRW 3 trillion monthly |
| SK hynix | Brought in dollars through its US listing on July 21. | USD 26.5 billion (about KRW 36 trillion) |
| — Above: dollar sellers, making the won dearer. Below: dollar buyers, making it cheaper — | ||
| Korean retail investors buying US stocks | Converted won into dollars to buy US stocks. | KRW 21.3 trillion this year (USD 14.5 billion) |
| Foreign investors selling Korean stocks | Sold stocks and converted proceeds into dollars to exit. Whether all proceeds were converted is unknown. | Net selling of KRW 166 trillion in stocks (converted portion unconfirmed) |
| Day | KOSPI | Individuals | Foreign | Institutions | Other corporations (companies) |
|---|---|---|---|---|---|
| 9/1 (Mon) | +0.23% | Net selling 5,398 | Net selling 4,919 | Net selling 6,340 | Net buying 16,657 |
| 9/2 (Tue) | −3.99% | Net buying 23,028 | Net selling 19,095 | Net selling 20,438 | Net buying 16,505 |
| 9/3 (Wed) | +0.26% | Net selling 9,552 | Net selling 4,232 | Net selling 2,153 | Net buying 15,936 |
| 9/4 (Thu) | +1.64% | Net selling 37,231 | Net buying 4,798 | Net buying 16,692 | Net buying 15,742 |
| Four-day total | −2.2% | Net selling 29,153 | Net selling 23,448 | Net selling 12,239 | Net buying 64,840 |
When retail investors sell stocks, brokerage deposits should rise. Yet over 20 days, deposits were KRW 8.1 trillion lower, at KRW 102.3 trillion, while margin loans used to buy stocks were KRW 6.0 trillion higher, at KRW 33.4 trillion. We do not yet know where the proceeds went: overseas stocks, deposits or property. We need the data due in early October (Release in early October) to find out.
Foreign ownership of US stocks is 18%, a record high. Foreign investors bought another USD 803.7 billion in US assets in Q1 of this year. China now holds the least US Treasuries in 17 years, and the gap is being filled by private money from allies. US stocks are equity, not debt. There is no obligation to repay; if prices fall, foreign investors bear the loss.
A cheaper dollar makes US import prices rise and those of its allies fall. Allied central banks have less reason to raise rates. A stronger currency itself does some of the work of a rate increase. This flow therefore slows itself: once the won is strong enough, the Bank of Korea has less reason to raise rates further, and the won's rise stops.
The yuan has appreciated 4% against the dollar, but the won has appreciated 13.6%. Over the past two months alone, the won has appreciated 10.5% against the yuan. Korean exports have become more expensive both in the US and relative to Chinese products. The conflict shifts from the US versus China to allies versus China. Korea's imports of Chinese hot-rolled steel have already fallen 90%.
The US is now a net oil exporter, so oil prices and the dollar move in the same direction (BIS research). Rising oil prices obstruct dollar weakness: they raise inflation and delay the US's next move, a rate cut. Gold rises when interest rates minus inflation fall. That measure remains high, leaving gold below its January peak by 21%. Gold is waiting for the next stage.
A stronger dollar alongside global risk aversion occurred in 2008, Q1 2020 and parts of this year's Q1. Holders of dollar assets won, while allied currencies and stocks lost. This article calculates what happens if the present direction continues. The opposite case is revisited under the US in §04.
Profits: The US government, which owes dollars; US investors with overseas assets (a cheaper dollar raises their dollar value); and US exporters. Cost: Import prices. August jobs were stronger than expected (+162,000 versus expectations in the 50,000s), raising the probability of a September rate increase again. Weak point: There is only one case in which the US loses: a stronger dollar alongside global risk aversion. The chart below shows why.
Profits: Energy and food import costs; insurers and pension funds resuming currency hedges on overseas assets (hedging was expensive because US rates were 1.8 percentage points above Japan's; a Bank of Japan rate increase lowers that cost). Losses: Exporters. The Nikkei fell on September's first four days, and SoftBank and Advantest accounted for 83% of the 9/4 rebound. Japanese individuals holding US stocks (JPY 20.1 trillion in overseas NISA investments). Policy: The Bank of Japan meets on September 17–18. The US called for correcting the yen's "substantial undervaluation" (§05).
Profits: Exporters that sold dollars (currency gains); the currency-hedged National Pension Service; and power and food businesses with falling import costs. Losses: Semiconductors sold in dollars; department stores and duty-free shops with fewer foreign visitors (a stronger won reduces visitors' purchasing power); and individuals holding US stocks (exchange rate −11.5%). Weak point: Korea alone faces a double squeeze. The won has appreciated against both the dollar and the yuan. If cheap Chinese goods push inflation down, the Bank of Korea cannot raise rates further, and the won's rise stops from within.
The Taiwan dollar has appreciated just 1.7% over the past 20 days. Yet Taiwanese insurers hold more than half of their TWD 22.3 trillion in overseas assets without currency hedges (a record-low hedge ratio of 44%). When the Taiwan dollar jumped roughly TWD 2 in two days in May 2025, they took the losses directly. They suffered another TWD 96 billion in currency losses in January–April this year. The same could happen again. Taiwan has pledged USD 500 billion of investment in the US, and TSMC is building USD 265 billion in Arizona. Taiwan's savings are already bound for the US.
The market tried to lift the yuan (a record USD 1.2 trillion trade surplus, and companies converting dollars held abroad into yuan). The government absorbed much of that pressure through its daily fixing, bank regulations and state-owned banks' accumulation of overseas assets. China is putting its surplus into gold (21 consecutive months of purchases) and overseas mines rather than US Treasuries. Its US Treasury holdings are at a 17-year low. Falling Chinese prices push cheap exports into allied markets, lowering their inflation. Allies then cannot raise rates, and their currencies stop strengthening. If the US still wants a weaker dollar, the remaining option is for the Fed to ease directly.
On July 31, the US bought yen alongside Japan, selling euros it held to do so. It was the first joint same-day US–Japan intervention since 2011, and the first intervention to lift the yen since 1998. Reports put the yen purchases at USD 5–10 billion★.
There is also a mechanism. To fund intervention, Japan would normally have to sell US Treasuries it holds, pushing their prices down. The Fed therefore allowed Japan to borrow dollars against Treasuries without selling them through FIMA repo, its lending facility for foreign central banks. US 30-year Treasury yields were above 5.2% at the time. In effect, the US told Japan: you may lift the yen, but do not sell US Treasuries.
Interpretations are attributed. Brad Setser of the Council on Foreign Relations reads this as preventing weak Asian currencies from undermining US reindustrialization. BNY's reading: the warning applies to all large-surplus Asian economies, including Taiwan, Korea, Thailand and Vietnam; the wording on the yuan was restrained. We relay these interpretations without adding to them.
The won was lifted by exporters' dollar sales and NPS currency hedges (§02), each driven by their own circumstances. Korean authorities said on June 9 they would not tolerate one-way moves, but no subsequent intervention to stop the won's rise was reported★. The yuan can be explained by the record trade surplus and companies converting offshore dollars into yuan (USD 311 billion in December alone★). The yen can be explained by expectations of Bank of Japan rate increases (board member Takata on September 3: "options not limited to 25bp," translated).
| Country | Appreciation (basis) | What lifted it | Government response |
|---|---|---|---|
| Japan | 2.4% (6/5~9/4) | Joint US–Japan intervention; expectations of Bank of Japan rate increases | The US intervened alongside Japan to lift it |
| Korea | 13.6% (from the 6/5 overnight high) | Exporters' dollar sales; NPS currency hedges; foreign purchases of government bonds; SK hynix dollar inflows | Did not stop the market's upward pressure |
| China | About 4% (from the start of this year) | Record trade surplus; corporate dollar-to-yuan conversion | Absorbed much of the pressure through the daily fixing, bank regulations and state-owned banks' overseas assets |
We cannot prove intent behind exchange rates. The US Treasury secretary's remarks and joint intervention suggest intent. Exporters' dollar sales and NPS currency hedges suggest market forces. Both are facts, and we cannot measure which mattered more.
What we can calculate is who gains and who loses if this direction continues.
| If this direction continues | |
|---|---|
| Those who gain | Dollar debtors (the US government first among them); holders of real assets; holders of appreciating currencies; currency-hedged US stock investors; businesses with falling import costs (power, food and materials); exporters that sold dollars and pension funds that hedged |
| Those who lose | Holders of unhedged dollar bonds and dollar assets: Taiwanese insurers (TWD 12.4 trillion unhedged), the unhedged portion of the NPS, Japanese insurers and Korean individuals holding US stocks; dollar-earning exporters; assets that move with oil prices |
| Disadvantaged now, better placed for the next stage | Gold, inflation-linked bonds and long-duration growth assets. They rise only once the Fed starts cutting rates. That is precisely why their prices are low now |
| Those resilient in the opposite case (dollar strength + risk aversion) | Dollar cash, US Treasuries, the yen, the Swiss franc and defensive sectors such as power. These insure against this article's calculation being wrong; they do not benefit from the current flow |
We cannot prove whether there was intent. But the effects clearly seem likely to favor someone. Those who owe dollars, hold real assets, or sold dollars for won. On the losing side sit the people in this article: Taiwanese insurers, Korean pension funds, Japanese insurers and Korean individuals who bought US stocks in June.
It calculates what happens if the present direction continues. In the opposite case, with a stronger dollar and global risk aversion, the entire table reverses. It does not discuss individual stocks or recommend buying or selling any asset.