Won's Strength and Foreign Buying: A Perfect Day for the Stock Market

The Won exchange rate strengthened to the 1330 Won level, which encouraged an influx of foreign investors.

Indeed, foreign investors recorded net purchases of 3.4 trillion Won in the spot market and 3 trillion Won in the futures market. With institutional investors also engaging in buying, the dual buying by foreigners and institutions supported the market.

Other corporations recorded net purchases of approximately 1.6 trillion Won, which is largely attributed to buybacks by major companies like Samsung Electronics and Hynix.

Consistent stock buybacks by large-cap companies provide a stable buying base for the market, significantly contributing to overall stock market stability in supply and demand.

Individual investors' fund flows showed conflicting patterns in direct and indirect investments (ETFs). Individuals engaging in direct investment recorded net sales totaling 8.6 trillion Won, seemingly realizing profits.

Conversely, indirect investment sectors like ETFs saw net purchases of approximately 3 trillion Won. This is attributed to individual funds, such as retirement pensions, flowing into ETFs, and the broad buying spree in ETFs is evaluated to have contributed to increasing the overall market's defensive strength.

On the 3rd, the domestic index experienced a 3% drop in just 30 minutes due to rapid fluctuations in oil prices and the yen.

In particular, the yen recorded around 154 yen against the dollar, showing its strongest appreciation since February of this year. Such a rapid appreciation of the yen could burden the domestic market in various aspects, including export competitiveness.

If the yen strengthens too much to the 140 yen level, it could negatively impact export competitiveness.

Therefore, maintaining the yen within a 'contained' range of 150-160 yen, which is favorable for both the K-stock market and the Japanese economy, is the scenario everyone hopes for until the end of the year.

The Bank of Japan (BOJ) is also likely to intervene in the market, possibly by selling US Treasuries, to defend the yen's value.

This reflects the Japanese government's will to induce yen appreciation and secure economic stability, including export competitiveness.

Excessive yen strength could trigger yen carry trade unwinding risk in the Korean stock market. There was a precedent two years ago when yen carry trade unwinding occurred when the yen exchange rate was around 145 yen.

While many experts are optimistic about the current situation, if the yen strengthens to the 145 yen level, the possibility of yen carry trade unwinding remains valid, which could burden the domestic stock market.

The Bank of Japan's (BOJ) monetary policy meeting, scheduled for the 18th after the US Federal Reserve (Fed) meeting on the 17th, is expected to be a critical turning point for the yen's trend. The market anticipates the BOJ will implement a 0.25 percentage point interest rate hike.

However, if the BOJ decides on a big-step (0.5 percentage point) rate hike, as rumored in the market on the 3rd, it could cause significant shock to the market and lead to results different from what we desire.

During the 1999 Dot-com bubble collapse, the yen also strengthened from late 1998, influencing the bubble's collapse.

In the 2008 global financial crisis, the yen also strengthened, and during the 2011 Great East Japan Earthquake, the US credit rating downgrade, and the European debt crisis, significant yen appreciation occurred. These past cases suggest that rapid yen appreciation can pose a potential shock to financial markets.

Analyzing the yen's monthly chart, movement within the 150-yen range is currently considered ideal. However, if the yen strengthens to the 147-yen level, it could act as a risk factor for the market.

In August 2024, the yen suddenly dropped to 145 yen due to a Japanese interest rate hike, causing the market to temporarily plunge by 8%. While a sharp drop this month is unlikely, if the yen strengthens to 147 yen, it could burden the market, requiring caution.

In particular, if the yen remains between 150 and 153-154 yen, the dollar index could also fall to 98, which would lead to a decrease in the Won/Dollar exchange rate from 1,330 Won to 1,310 Won, and further to the late 1,200 Won range. This strengthening of the Won is expected to further encourage foreign investors to enter the domestic stock market, positively impacting the KOSPI's rise.