Is Japan Next? US Pressure on South Korea’s Won Raises Questions About Yen Policy

A recent media report revealed that the United States is in working-level discussions with South Korea regarding a stronger won. While the South Korean Finance Ministry confirmed the talks, it emphasized that no details have been finalized. The implications of this are far-reaching—not just for Korea’s export-driven economy, but for its regional neighbor and economic powerhouse: Japan.

If the US is pressuring Korea to strengthen its currency, will Japan face similar demands? And if so, what are the broader economic and geopolitical implications?

Currency Depreciation in East Asia: A Post-COVID Reality

Since the pandemic, both the South Korean won and the Japanese yen have depreciated sharply against the US dollar. Compared to pre-COVID levels, these currencies have lost between 40% to 50% of their value. While such devaluation helps exporters by making their goods cheaper in global markets, it raises red flags in Washington.

From the perspective of US policymakers, this depreciation may be seen as:

Unfair trade advantage for East Asian economies.
A threat to American manufacturing competitiveness.
Fuel for inflation due to increased import costs.

This is not the first time the US has taken issue with currency moves in Asia. The US Treasury Department routinely monitors large trading partners, including Japan and South Korea, for potential currency manipulation or policy actions that unfairly distort trade balances.

Why South Korea? Why Now?

The timing of this pressure is telling.

Several analysts speculate that the move could be politically strategic. One theory suggests that the US may want Korea to have a stronger won to enhance its purchasing power—potentially for defense imports or other strategic expenditures related to regional stability and support for Ukraine.

Korea’s proximity to North Korea and growing ties with the US in defense and tech make it a critical ally in a tense geopolitical environment. Strengthening the won could:

Improve Korea’s import capacity for US-made arms.
Reduce inflation in Korea, aiding internal political stability.
Signal a unified Western economic front in Asia.

But these benefits come at a cost: Korea’s export-heavy industries, such as Hyundai and Kia, stand to lose competitiveness if the won appreciates significantly.

Is Japan Next in Line?

Given this backdrop, it’s logical to ask: Will Japan also be pressured to allow a stronger yen?

Reasons to Expect US Pressure on Japan:

Similar Currency Trends: The yen, like the won, has weakened substantially since COVID, giving Japanese exports a boost.
Historical Precedents: Japan has previously been flagged in the US Treasury’s semiannual currency manipulation reports.
Regional Ripple Effects: If Korea strengthens its currency while Japan doesn’t, competitive imbalance within Asia could escalate.
America First Economics: A stronger yen would reduce Japan’s trade surplus with the US, aligning with protectionist goals like reshoring manufacturing.

Reasons Japan May Resist:

Protective Economic Policy: Japan is notoriously cautious about external pressure and fiercely defends its domestic industries.
BoJ Monetary Policy: The Bank of Japan maintains ultra-loose monetary policy, prioritizing inflation control and growth. A sudden yen strengthening would undermine this.
Export Powerhouse Risks: Major firms like Toyota, Sony, and Canon benefit enormously from a weaker yen. A shift could trigger earnings downgrades and market corrections.

Geopolitics or Economics? Likely Both

It’s essential to view these moves not just through the lens of economics but also geostrategic realignment.

The US may not merely be fighting inflation or defending manufacturing. It may be using currency diplomacy as a tool in:

Containing China’s influence.
Countering North Korea and Russia.
Encouraging allies to boost defense spending and import capacity.

In this light, currency policy becomes a chess piece, not just a reaction to market forces.

The Yen May Not Be Safe

South Korea’s negotiations over the won may just be the first domino in a wider US-led initiative to realign trade and currency dynamics across the Indo-Pacific. Japan, with its deeply integrated export economy and historically significant role in US trade imbalances, may soon find itself under similar scrutiny.

Whether Japan acquiesces or resists remains to be seen. But one thing is clear: the US is no longer sitting idle as regional currencies slide, and the era of “benign neglect” toward the yen and won may be coming to an end.

IBAFIN