SINGAPORE, July 31 (Reuters) - Japanese and South Korean authorities stepped in to buy their currencies in the open market in what sources described was a rare and an unprecedented coordinated market intervention, possibly alongside the United States.
The intervention late Thursday lifted the yen away from the 40-year lows it has been hovering around this week although traders were back testing Tokyo's resolve on Friday as the Bank of Japan held rates steady as expected.
The move in the yen came around
the same time as the Korean won firmed 2% to its highest in nine months. A market source told Reuters that South Korea's foreign exchange authorities had conducted a rare dollar-selling intervention.
"The interests of each country aligned. For Korea-Japan cooperation, the won and the yen are so tightly coupled that a joint intervention could double the impact," said Lee Min-hyuk, an analyst at KB Kookmin Bank.
"From the U.S. perspective, Korea and Japan need to invest in America. Since the exchange rate has been exceptionally high recently, the U.S. likely wanted our exchange rate to come down as well."
The Nikkei newspaper reported earlier on Friday that Japan likely conducted massive yen-buying intervention and said that U.S. authorities conducted rate checks.
The yen was last at 160.64 per U.S. dollar, 0.7% softer on the day after strengthening to as much as 157.8 in the previous session, raising the stakes for the BOJ meeting as investors worry that interest rate hikes may not come fast enough.
The central bank kept interest rates steady at 1% on Friday but the focus will be on the comments from the central bank and whether it is ready to continue pushing up borrowing costs.
"The key signal from last night's move is that Ministry of Finance remains uncomfortable with excessive yen weakness," said Masahiko Loo, senior fixed income strategist at State Street Investment Management.
Japan has intervened in currency markets in coordination with the U.S. or other G7 partners five times since 1985, and eight times on its own, according to an analysis by currency strategist and trader Brent Donnelly at Spectra Markets. Most of the joint interventions coincided with a turn in the direction of the dollar/yen pair, his analysis shows.
Meanwhile, the won, which hit a 17-year low of 1,561.50 last month, was last nearly 1% weaker at 1,437.62 per U.S. dollar on Friday. It has gained nearly 8% this month on the back of firms repatriating dollars back into South Korea.
SK Hynix raised $26.5 billion in a U.S. offering earlier this month with a source familiar with the matter telling Reuters the firm converted a part of the funds it raised in its American depositary receipts (ADRs) offering into won.
"People were questioning whether the exchange rate would rebound once the ADR ended," said KB Kookmin Bank's Lee.
"As the ADR concluded and Japan intervened to support the Yen, our authorities probably used this opportunity to push the rate down and break the market's high exchange rate expectations."
(Reporting by Yena Park and Jihoon Lee; in Seoul, Leika Kihara,Takaya Yamaguchi and Makiko Yamaguch in Tokyo, Writing by Ankur Banerjee in Singapore; Editing by Raju Gopalakrishnan)
