U.S. Treasury Secretary Scott Bentsen warned that a weakening Japanese yen could trigger a broader decline across other Asian currencies.
This warning signals potential U.S. concern over regional financial stability, as the interconnected nature of Asian markets means volatility in one major currency often spills over into others.
Speaking during a CNBC interview, Bentsen said the United States has witnessed "excessive volatility" in the Korean won. He said that the Korean won is weakening because the yen is weak. He said that if the yen shows significant weakness, other currencies will follow.
Market data reflects this instability. At 2:50 p.m. Eastern Time on the day of the report, the won was trading at 1,429 KRW per U.S. dollar [1]. This follows a period of steady depreciation from the end of 2023, when the rate stood at 1,288 KRW per dollar [2].
Comparing the two currencies, the won has experienced sharper declines than the yen. In 2024, the won depreciated by 12.5 percent against the dollar compared to end-2023 levels [4], while the yen depreciated by 10.6 percent [5]. Projections for the won in 2024 reached as high as 1,472.5 KRW per dollar [3].
Short-term trends also highlight the won's sensitivity. In May, the won depreciated by 4.6 percent against the dollar [7], more than double the yen's two percent decline during the same month [6].
“We have witnessed excessive volatility in the Korean won”
The Treasury Secretary's comments suggest that the U.S. is monitoring the 'yen carry trade' and its ripple effects on emerging Asian markets. When the yen weakens significantly, it can create competitive pressure on neighboring exporters, leading to a downward spiral in currency values that may eventually require central bank intervention to prevent economic instability.
