The Japanese Yen (left) and the US Dollar. Nihon Keizai Shimbun reported on the 24th that market speculation that U.S. and Japanese foreign exchange authorities have jointly intervened to prevent excessive yen depreciation has intensified yen buying sentiment. [Photo=Yonhap News]

In mid-January, U.S. President Donald Trump and Japanese Prime Minister Sanae Takaichi held a summit meeting at the Mar-a-Lago resort in Florida. At this meeting, the U.S. and Japan reached a full agreement on currency cooperation to defend the yen's value against depreciation and curb the dollar's strength. The two countries decided to jointly intervene in the foreign exchange market.

This signals that the Trump administration, unlike previous governments, has begun to take active steps to curb a "strong dollar," and to this end, is initiating actions for the currency stabilization of Asian countries, which are its major trading partners.

Foreign Exchange Market Reacts Even to a 'Late Check'

According to foreign media reports including Reuters, AP, and Bloomberg on the 25th and 26th, this move is aimed at curbing excessive dollar strength and normalizing (appreciation) the value of major Asian currencies such as the Japanese yen. The U.S. wanted a "weak dollar" policy to reduce its trade deficit, and Prime Minister Takaichi's need to prevent price increases in Japan caused by excessive yen depreciation aligned with this interest.

This is the first time in approximately 15 years since the Great East Japan Earthquake in 2011 that the U.S. and Japan have joined forces to intervene in the foreign exchange market. At that time, it was not merely a unilateral Japanese action but a joint intervention backed by full U.S. support, which caused a significant shock to the market.

Now, 15 years later, the U.S. and Japan have again agreed to jointly intervene in the foreign exchange market. Based on this agreement, joint intervention began on the 25th and 26th, with the New York Federal Reserve (Fed) collaborating with Japanese authorities to conduct 'late checks' (price checks, exchange rate checks) on the yen.

A 'late check' is an act where central banks like the New York Fed or the Bank of Japan call commercial banks and ask, "What is the current yen-dollar exchange rate?" Central banks already see the exchange rates on their screens, but this direct inquiry serves as a strong warning message that "we are ready to intervene in the market soon."

This is a step taken before direct intervention through selling dollars and buying yen. Even by simply asking for the exchange rate, market participants become intimidated and begin to sell dollars. Therefore, it has the effect of lowering the exchange rate of a specific currency and increasing its value without actually spending money.

The late check conducted on the 25th can be seen as an action taken just before the U.S. and Japan actually sell dollars to lower the exchange rate. Particularly, this 'late check' is considered an extremely unusual and powerful measure because it was conducted jointly by the U.S. and Japan.

The Mar-a-Lago Accord... A Modern Version of the 1985 'Plaza Accord'

The current 'Mar-a-Lago Accord' between the Trump administration and the Japanese government is considered a modern version of the 1985 'Plaza Accord,' where major countries intervened to curb dollar strength. The core objective is to induce a weaker dollar artificially, meaning an appreciation of major Asian currencies including the Japanese yen, to resolve the massive U.S. trade deficit.

The Mar-a-Lago Accord is understood to include provisions where the U.S. tolerates Japan's foreign exchange market intervention or supports Japan by the New York Fed directly buying yen, and in return, Japan cooperates with the U.S. in trade and security matters.

The Trump administration believes that excessive dollar strength harms U.S. export competitiveness. The U.S. goal is to increase the value of major Asian currencies such as the yen, won, and Taiwan dollar, thereby lowering exchange rates and boosting the export competitiveness of U.S. products.

Following U.S.-Japan Cooperation, Won-Dollar Exchange Rate Also DOWN↓

Immediately after the U.S. and Japan signaled joint intervention, the value of both the yen and the won surged, leading to a decline in exchange rates. With the U.S. expressing its intention to defend the value of Asian currencies, the Bank of Korea and other foreign exchange authorities are seen as having a respite from the pressure of high exchange rates.

Indeed, on the 26th, upon news of the U.S. and Japanese intervention, the won-dollar exchange rate in the Seoul foreign exchange market plummeted by more than 25 won in a single day, showing a clear trend of won appreciation. Fueled by the yen's strength, the won-dollar exchange rate fell to the 1440 won range for the first time in 13 trading days since the 7th of this month. This is naturally a result of the U.S. and Japan showing signs of joint market intervention.

The won tends to move in tandem with the yen. The yen and won are treated as a single 'major Asian currency' basket by foreign investors, and their values move similarly. Typically, when the yen strengthens, the won also rises, showing a coupling phenomenon where the won-dollar exchange rate falls. However, on the 27th, it opened at 1450 won, up 9.4 won from the previous day (26th), which is interpreted as a result of buying at lower prices as the won-dollar exchange rate fell to the 1440 won range.

Inflation Expectations Also Decline... A Brief Green Signal

Inflation expectations refer to consumers' anticipation that prices will continue to rise in the future due to sustained inflation over a long period. Exchange rates and inflation expectations are closely intertwined.

When exchange rates rise, the prices of imported raw materials, components, and daily necessities increase, leading consumers and businesses to expect further price increases in the future. This is how rising exchange rates increase inflation expectations. Furthermore, if inflation expectations rise, people, fearing that prices will significantly increase and the value of currency will fall, rush to buy dollars as a safe asset, increasing dollar demand and creating a vicious cycle of further exchange rate increases.

Fortunately, with the news of joint intervention in the U.S.-Japan foreign exchange market, not only the won-dollar exchange rate but also inflation expectations, which threaten the Korean economy, have fallen.

As of the 27th, the inflation expectation rate based on the consumer trend survey released by the Bank of Korea is 3.1%. This is a slight decrease of 0.1 percentage points from the previous month (3.2%). It is analyzed as a result of the recent joint currency intervention by the U.S. and Japan, such as the Mar-a-Lago Accord and the New York Fed's late check, which has somewhat stabilized the won-dollar exchange rate, and a slight mitigation of the fear of imported price increases.

However, this is still a high level compared to the Bank of Korea's inflation target of 2.0%. In particular, consumers still perceive inflation as high, citing factors such as public utility rate hikes and prices of agricultural, livestock, and fishery products as major drivers of future price increases.

Economic experts believe that given that inflation expectations remain in the 3% range, it will be difficult for the Bank of Korea to cut interest rates for the time being. They also warn that if the Trump administration's tariff policies are actually implemented, there is a risk of re-stimulating inflation sentiment. In other words, while Korea's current inflation expectation rate has slightly decreased to 3.1%, it is still a serious situation where price instability has not subsided.

Korea's Weak Fundamentals... Beware of Rising Exchange Rates

Financial experts predict that the won-dollar exchange rate will rise further in the future, despite the joint intervention by the U.S. and Japan. Some even forecast it to exceed the 1600-1700 won range. Logically, U.S.-Japan intervention should lead to dollar weakness and a stronger won, but the specific circumstances facing the Korean economy could offset this effect.

As of early 2026, the sentiment among consumers that "prices will continue to rise" is strongly influenced by the volatility of international oil prices and the Trump administration's announced tariffs. This is a major reason why inflation expectations remain at a high level.

The Bank of Korea believes that if inflation expectations do not decrease, it will be difficult to control core inflation. Workers in industrial fields also demand wage increases corresponding to the price increases, which in turn leads to product price increases, creating a risk of a "wage-price spiral." Economic experts analyze that if inflation expectation figures remain high, the Bank of Korea will have no choice but to strengthen its tightening stance and will not be able to easily lower interest rates.

The biggest factor predicting a rise in the won-dollar exchange rate is the fear surrounding the Trump administration's "universal tariffs." Universal tariffs are fatal to export-driven economies like Korea. Due to concerns that the imposition of tariffs will worsen the export performance of Korean companies, investors are preemptively selling won and trying to secure dollars, causing the won's value to fall and the exchange rate to rise. The judgment is that the pressure of a "tariff bomb" could be greater than the effect of dollar weakness from the 'Mar-a-Lago Accord'.

The U.S. and Japan have the capacity to defend their currency values through joint intervention, but Korea's situation is different. Recently, Korea's slowing export growth and sluggish domestic demand have weakened the support for the won's value. Experts analyze that even if the U.S. tries to lower the dollar's value, the won will not be able to escape depreciation if the Korean economy's inherent attractiveness declines.

In conclusion, economic experts warn that "the weakening of fundamentals such as the impact of Trump's tariff bomb and the slowdown in Korea's economic growth will have a greater impact on the market than the possibility of a currency decline due to U.S.-Japan currency intervention," and they warn of a continuous rise in exchange rates due to these factors.

By Park Hye-soo