Japan and South Korea Warn Against Excessive Currency Weakness

Japanese and South Korean authorities issued warnings against the excessive depreciation of their currencies relative to the U.S. dollar between December 23 and 24, 2025. Satsuki Katayama, the Japanese Finance Minister, announced that Japan has a "free hand" to deal with excessive moves in the yen, describing recent volatility as speculative. This followed the yen hovering near an 11-month low of 157.78 per dollar. While the yen saw modest gains following her statements, analysts noted that the Bank of Japan's cautious outlook on future rate hikes may sustain near-term weakness.

On December 24, South Korea's Ministry of Economy and Finance and the Bank of Korea issued a joint verbal intervention after the won hit a near eight-month low. Authorities stated the currency's weakness was "not desirable," causing the exchange rate to drop from an opening of 1,484.9 won per dollar to approximately 1,463.35 won. To address structural imbalances, the South Korean government introduced tax incentives for currency hedging and temporary capital gains tax relief for retail investors shifting overseas holdings to domestic investments.

These fluctuations occurred as the U.S. dollar index fell to 98.07, driven by expected Federal Reserve rate cuts in 2026 and a dip in consumer confidence. However, the dollar partially recovered after the Bureau of Economic Analysis reported that third-quarter U.S. GDP grew at a 4.3% annualized rate, exceeding forecasts.