The Japanese Yen (JPY) and South Korean Won (KRW) have both dropped over 5% against the US Dollar (USD) in the last three months. This decline has made finance ministers in Tokyo and Seoul warn about one-sided and speculative changes in exchange rates. The Bank of Japan (BOJ) is considering raising interest rates sooner to tackle imported inflation. Meanwhile, the Bank of Korea (BOK) mentioned that the weak won limits its ability to lower rates to help the local economy.

Intervention Risks

Japan has made its stance on intervention clear, previously stepping in to lower the USD/JPY rate from a high of 162. If USD/JPY continues to drop, it may also affect the USD/KRW rate because they are closely linked this year. These changes raise the risk of intervention in both the JPY and KRW, which could influence their currency movements. Recent trends have wiped out gains made this year, and many are closely watching how things unfold. The risks of intervention in the Japanese Yen and South Korean Won are rising. With USD/JPY around 159.50, it’s nearing the critical 160-162 area where authorities intervened in July 2024. This indicates that the market is testing Japanese officials’ resolve, and traders should prepare for sudden price changes. The Bank of Japan has suggested it may raise rates sooner than expected to address imported inflation. Japan’s core inflation has stayed above the 2% target for over a year and a half, reaching 3.1% in October 2025, making this potential rate hike credible. If rates go up, USD/JPY might fall, making put options on this pair a smart strategy.

Policy Challenges in South Korea

In South Korea, the central bank is in a tough spot because the weak won prevents it from cutting rates to support a slowing economy. Recent trade data from November 2025 showed a decline in export growth, highlighting this challenge. This policy deadlock could keep the KRW weak unless Japan’s actions strengthen it. It’s important to watch how these two currencies interact, as movements in USD/JPY often lead to changes in USD/KRW. Coordinated verbal warnings in late 2024 caused both pairs to drop from their highs. Therefore, any intervention that brings USD/JPY down could signal a good time to open short positions on USD/KRW. With the timing of any official action uncertain, buying volatility might be a smart move. Using options strategies like straddles on USD/JPY can help profit from significant price swings, no matter the direction. We saw this pair move over 4% in just two days during the last major intervention, showing the potential size of the next move. Create your live VT Markets account and start trading now.

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