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Korean currency, markets increasingly mirror Japan as they drift from China, U.S.

Published: 30 Mar. 2026, 18:57 Updated: 30 Mar. 2026, 20:08

JIN MIN-JI
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A mix of bank notes[GETTY IMAGES PRO]

[BEHIND THE NUMBERS]

Korea’s market is breaking from longstanding patterns, moving more in step with the Japanese yen and Japanese equities while leaving behind its former ties to the Chinese renminbi and U.S. stocks.

The won and yen have both weakened significantly this year, with the won repeatedly breaking the 1,500 mark against the dollar — the weakest level in 17 years — while the yen also broke the closely watched 160 level just before the weekend, prompting the country’s authorities to signal intervention. On Monday, the won weakened to 1,515.7 per dollar while the yen slightly strengthened to below 160 following a warning by the government.

Their stock markets also largely moved in the same direction, with the Kospi rising more than a 100 percent on-year, and the Nikkei 225 advancing 46 percent. That correlation is much stronger than with Korea’s once closely related U.S. market, as the S&P 500 advanced merely 13 percent.

The shifting supply chain landscape, driven by U.S. AI demand, and geopolitical uncertainties that have constrained energy imports, have played key roles in the recent synchronization of Korean and Japanese markets — both of which are energy-dependent, export-driven economies.

But experts warn that the synchronization between the two markets could quickly unravel if key economic triggers — such as diverging monetary policies — take hold.

Electronic display boards show Korea's financial market at Hana Bank's dealing room in central Seoul on March 30. The won fell 6.8 won from the previous session to trade at 1,515.7 per dollar at 3:30 p.m., extending the losing streak to the fourth consecutive session. [NEWS1]

From renminbi to yen

The won once closely tracked the Chinese renminbi, earning a reputation as its proxy currency. However, that synchronization has weakened over time, while its correlation with the yen has grown noticeably stronger.

The co-movement between the won and the yen rose from 0.35 in the first half of last year to 0.53 in the second half, according to a Bank of Korea report on March 12. A number closer to 1 indicates a stronger positive correlation. The correlation with the yen is higher than that with the Chinese renminbi, which rose from 0.33 to 0.42 over the same period.

“Before the pandemic, the manufacturing cycles of China and Korea were closely linked — almost like a division-of-labor relationship,” said Park Sang-hyun, an analyst at iM Securities, noting that Korea’s production of parts, assembly and intermediate goods was heavily integrated with China’s supply chains.

“As a result, the currencies were naturally synchronized, particularly since both countries are emerging markets and often viewed as part of the same portfolio group by global investors. But as China’s manufacturing has developed and the economy slowed, the division-of-labor relationship with Korea has weakened,” Park added.

Instead, Korea’s manufacturing integration with Japan has deepened, as both countries have become key suppliers within U.S.-aligned supply chains for AI-related industries — one of the fastest-growing and most heavily invested sectors globally. Deeper involvement in U.S.-led value chains has made their markets increasingly sensitive to shifts in U.S. economic conditions and technological policy.

Korea and Japan are both major players in the global semiconductor industry, with Seoul serving as a leading supplier of memory chips crucial for AI data center development, while Japan provides essential semiconductor materials, including photoresists and silicon wafers.

Last year, Korea’s exports to the United States accounted for 17.3 percent of its total exports, making it the second-largest destination after China (18.4 percent). In the same period, Japan’s exports to the United States made up about 20 percent of its total exports, followed by China at roughly 18 percent. A significant share of both countries’ exports is tied to semiconductor-related industries.

The energy shock stemming from the war in the Middle East has further intensified the synchronized weakening of the won and yen, as Seoul and Tokyo are heavily reliant on Middle Eastern oil, leaving them particularly exposed to supply disruptions and rising import costs.

Korea sources roughly 70 percent of its crude from the region, while Japan relies on the region for nearly 90 percent, leaving both highly vulnerable to any disruption in the Strait of Hormuz, a critical shipping route that has been effectively closed since the outbreak of the conflict. Rising tensions have already driven up global oil prices, with the international benchmark Brent crude surging past $115 per barrel on Monday.

Their growing synchronization could have ripple effects in global markets.

“Because of the won and yen’s co-movement, hedge funds can trade the two currencies as a paired trade,” said Wi Jae-hyeon, an analyst at Kyobo Securities. “This can make them appear strongly linked for a period. However, if specific triggers occur, the two currencies could move in different directions.”

He cited a potential interest rate hike in Japan as an example. “Japan holds a large share of its overseas assets in bonds, while Korea’s holdings are more heavily weighted toward equities. If Japan raises rates, there is a stronger incentive for overseas bond funds to return home, whereas Korea’s markets are less likely to see major fluctuations from the same rate move.”

From Wall Street to Tokyo

Shifts in the global supply chain have also prompted Korean equities to break from old patterns, with local indexes increasingly diverging from their former U.S.-driven trajectory and aligning more closely with Japanese stocks.

The evolving supply chain, centered on chips — an area of significant strength for both Korea and Japan — is drawing the two markets closer together while diverging from their traditional supplier, the U.S. market, which is struggling to remain profitable.

“Korea and Japan’s highly developed, chip-centered manufacturing economies have remained relatively insulated from AI disruptions, as U.S. Big Tech firms continue investing in AI, sustaining strong demand for chips,” said Hwang San-hae, an analyst at LS Securities. On strong earnings, Samsung Electronics’ shares jumped 37 percent this year, while SK hynix shares rallied 29 percent. Shares of Tokyo-headquartered Kioxia Holdings, which specializes in flash memory, also rose 76 percent year-to-date.

Korea’s policy direction, following the path Japan took to modernize its stock market, is also influencing the co-movement.

Starting with the previous administration’s "corporate value-up" program, aimed at narrowing the so-called Korea discount, or the persistent undervaluation of Kospi-listed companies compared to their global counterparts, Seoul has drawn heavily on Japan’s corporate value enhancement plans to modernize its capital market. Measures have included a disclosure system requiring companies to publicly announce targets to boost profitability and growth, as well as the segment reclassification of the stock market.

“This trend has narrowed investors’ perception gap between the Korean and Japanese markets, although there are structural limits to pairing them from a flow perspective,” Hwang added, as Korea is classified as an emerging market in global indexes like Morgan Stanley Capital International, while Japan is firmly established as a developed market.

The decoupling between the Korean and U.S. stock markets could deepen if geopolitical tensions continue to weigh on the global economy.

“Korea is highly exposed to raw material and energy costs, so any increase in production expenses could raise the price of Korean chips, affecting U.S. companies that rely on them,” said Lee Jae-won, an analyst at Yuanta Securities. Combined with concerns over interest rate hikes, this means that unless oil prices stabilize, corporate earnings could remain under pressure, further widening the performance gap between the two markets.

BY JIN MIN-JI [[email protected]]