⚡ Key Takeaways
U.S. Market Intervention and Inducing a Stronger Yen:
U.S. Treasury Secretary Scott Bessent is pressuring the Federal Reserve and the Bank of Japan to steer a stronger yen and a weaker dollar, pursuing policies aimed at easing the debt burden of U.S. Treasuries on the back of AI-driven economic growth.
Korean Won Takes a Breather While Yen Turns to Rally:
After surging in July and August into the low 1,300-won range per dollar, the Korean won has seen its upward momentum slow, whereas the Japanese yen is projected to appreciate relatively faster amid the possibility of a rate hike in Japan.
Stable Range-Bound Fluctuations for USD/KRW:
Strong semiconductor exports and brisk domestic capital investments are supporting the floor of the won, but increased overseas asset holdings and dollar-buying demand are offsetting this, making it likely that the won-dollar exchange rate will move within a gradual range-bound band.
※ This article is based on a video published on September 11, 2026.
"I am the house in this casino right now. You want to bet your money against the direction I'm telling you to go? Go ahead and try." These were the words spoken by U.S. Treasury Secretary Scott Bessent, the man who commands the flow of money in the Trump administration, during an appearance at a university event. It was an explicit challenge: "Do you really think you can take on the U.S. government and win?"
Lately, the United States has been openly intervening in foreign exchange and bond markets, engaging in a battle of wills with the market. "Didn't I tell you the Japanese yen is going to strengthen? Stop betting on a weak yen. And that mountain of dollar debt the U.S. is sitting on? I told you that's no big deal either; I'll solve it." Will this trend continue? And how will it impact the value of the Korean won, which appreciated rapidly throughout the summer, as well as the capital markets?
Following a sharp rebound, the Korean won has climbed into the low 1,300-won range, reaching its strongest level in nearly two years. Now is the time to take a fresh look. Can the won settle into the 1,200-won per dollar range at this pace?
Scott Bessent | U.S. Treasury Secretary (U.S. Time September 8, 2026)
I have asymmetric information. I am the house right now. So when the U.S. government intervenes in the Japanese yen... you should consider that we intervene knowing quite a bit about what the Bank of Japan will do going forward. If you want to bet against the direction I'm telling you, go ahead and try.
*Source: YouTube SMU
Among the world's major currencies, the Korean won appreciated the fastest against the dollar in July and August. Entering the first week of September, however, the Japanese yen overtook the won to become the fastest-rising currency. The U.S. government is cited as one of the biggest reasons. Washington has been openly exerting strong pressure on the Bank of Japan to raise its policy interest rate—the cost of borrowing yen. A growing sentiment that "this time it seems real, Japan's interest rates might actually go up this time" is now spreading rapidly through the market.
In fact, repeated attempts to bolster the yen have been neutralized throughout this year. Although Japanese foreign exchange authorities spent over 100 trillion won in Korean currency terms in the second quarter to buy yen, the currency instead tumbled to its weakest level against the dollar in 40 years. Foreign exchange authorities absorbing yen proved insufficient to stem market momentum, which was driven by expectations that the Japanese government under Prime Minister Takaichi would ultimately inject massive liquidity, leaving the market flooded with yen.
Then, on the final day of July, the United States intervened directly. Japanese foreign exchange authorities once again deployed record funds to buy yen, and the U.S. also intervened by buying yen for the first time in 28 years. It was at this time that Secretary Bessent intentionally flashed a handwritten note reading "buy yen" to television news cameras. While the exact amount of money the U.S. spent buying yen was not disclosed, he anticipated that merely exposing a memo indicating the U.S. was willing to spend up to $10 billion to lift the yen would stimulate bets on yen appreciation.
Despite the U.S. stepping in to this extent, the yen collapsed once again in late August. And the cause was once again the United States. Whether the key figure behind the news that drove down the yen is in fact coordinating closely behind the scenes with Secretary Bessent—who is trying everything to lift the yen—or whether he might genuinely break ranks with President Trump, who appointed him, and the U.S. administration, is one of the key factors that will dictate the direction of not only the yen, but also the Korean won, the stock market, and global interest rates through the end of the year. The question is how Kevin Warsh's Federal Reserve will act after September.
Precarious Interest Rates: Can Bessent's Tactics Succeed?
Kevin Warsh | Federal Reserve Chair
It would be difficult to describe overall financial conditions right now as restrictive. The Federal Reserve's goal of achieving 2% inflation based on the PCE price index remains firmly anchored.
In late August, when Fed Chair Kevin Warsh's remarks were interpreted by some as hawkish—sending the message that "the U.S. central bank might even raise dollar interest rates if push comes to shove"—the yen immediately began sliding once more.
Secretary Bessent stepped forward again early this month. In essence, his message was: "Forex traders, I am the house in this casino. You saw my note last time, right? You might think that was just a bluff and that the U.S. government doesn't have the capacity to keep buying yen. But I still know information that you don't. (The Bank of Japan may raise interest rates in September, and that might not even be the end of the hikes. If the yen continues to collapse like this, large Japanese institutions will start selling off U.S. Treasuries first from their massive overseas asset holdings to cover losses—do you really think the U.S. would let that happen?)"
As of 2026, with the U.S. facing a snowballing mountain of debt, a variety of tactics are being deployed under Bessent's leadership to manage the situation. Among the foremost of these is Secretary Bessent's plan to expand U.S. Treasury buybacks, which has been one of the biggest topics in the market since mid-August.
However, for these tactics to succeed, many interlocking gears must align and turn in sync. To examine several key cogs: Japan, Europe, and South Korea raise their interest rates—the cost of money—while the U.S. freezes rates. Meanwhile, soaring oil prices and agitated inflation worries sparked by the Trump administration's war with Iran must be soothed by Fed Chair Kevin Warsh spooking the market by warning, "We might really raise rates if this continues," while ultimately holding off on an actual rate hike. All of these pieces must fall into place seamlessly; if even one falters, markets could be thrown into turmoil.
"Lower Dollar Rates and AI Will Rescue America from Its Debt Pile"?
"America must have the lowest interest rates in the world. Then the U.S. economy can grow by 20% a year. And neighborhoods opposing the construction of AI data centers will stay impoverished." Looking only at the numbers, President Trump's recent barrage of remarks on social media might sound like bluster, but the core message itself points clearly in a consistent direction.
The message is: "The U.S. government has no intention of paying down its debt. We just need to boost productivity through the AI revolution and achieve both economic revival and hegemony." Rather than reducing the debt itself, the goal is to expand the size of the U.S. economy much faster so that the debt burden becomes relatively smaller. For that to happen, U.S. interest rates—the cost of borrowing dollars—must not be allowed to become more expensive than they are now. Let Japan, Europe, and South Korea keep raising rates, allowing the yen, euro, and won to become stronger against the dollar.
On the other hand, while Kevin Warsh's Fed may verbally intimidate the market, it must not take measures that would actually drain market liquidity. With the war with Iran still dragging on and weather turning colder, oil prices have touched $100 per barrel again—is this sustainable? The underlying logic is that as AI development accelerates, cost savings across other factors of production will emerge, meaning there will be no need to worry about such pressures for long.
Only if dollar borrowing costs do not rise further can the U.S. government avoid swelling interest burdens on its massive fiscal deficits and colossal dollar debt, while preserving its ability to issue even more debt. Furthermore, there is a sense of urgency in Washington that dollar liquidity must not dry up in the slightest, if only to sustain a second half of the year in which the U.S. government and American corporate giants continue borrowing side by side.
Because companies boasting credit as solid as the U.S. government—such as Google, Amazon, and Meta—are flooding the market with corporate bonds offering higher yields than Treasuries, it is already difficult for U.S. Treasury yields to decline. Under these conditions, the emergence of an even higher interest rate environment is something the Trump administration simply cannot accept.
So how committed would Kevin Warsh's Fed really be to tightening if inflation surges along this path? All current analyses remain mere speculation. However, as noted at the time of his appointment early this year, Chair Kevin Warsh ultimately shares Bessent's philosophy that AI must be nurtured to rapidly boost productivity.
In the market, the prevailing view for now is that even if Chair Warsh calms the market rhetorically while emphasizing the Fed's independence, he will ultimately avoid straying far from Bessent's strategy. This suggests the dollar is likely to maintain its relative weakness for the time being.
"Won Is Now Approaching 'Fair Value'": Is It the Yen's Turn to Sprint?
This provides some room to anticipate the future direction of the yen and won for the time being. While forecasting remains notoriously difficult, analyses suggest that although the won is unlikely to weaken significantly after September, its upward momentum seen during the summer will taper, whereas the yen could appreciate more rapidly. This is because a September rate hike by the Bank of Japan has become virtually a foregone conclusion, and the possibility of further rate increases is even being discussed.
In this scenario, the gap between the won and yen that widened during the summer as the won appreciated rapidly is likely to narrow again. The won and yen are expected to realign in tandem, making trips to Japan for Koreans more expensive than they are now.
Choi Gyu-ho | Senior Analyst at Hanwha Investment & Securities
If next week's FOMC turns out to be less hawkish than expected and the Bank of Japan sounds more hawkish, I think U.S. Treasury prices and the yen could surge in the short term. (Therefore,) even if talk of unwinding the "yen carry trade" emerges, the impact on the market will unlikely be a shock like the one seen in 2024; rather, it will likely be at a level that simply adds a bit more upward momentum to the yen.
South Korea has earned an astonishing, almost unbelievable amount of semiconductor dollars this year. However, the conversion of those funds into won and their settlement domestically only gained full momentum in the second quarter. The nation's two major semiconductor companies converted their dollar earnings into won as they planned massive domestic investments and proceeded with shareholder returns. As a result, businesses that had hesitated, wondering "The dollar seems likely to keep getting stronger, so is it okay to convert now?", finally began exchanging their currencies. In the second quarter alone, corporations sold more than $260 billion.
Earlier this year, we reported on analyses by foreign institutions noting that the Korean won was excessively undervalued relative to the fundamental strength of the Korean economy. The gap between those fundamentals and the exchange rate has gradually begun to close.
Just how undervalued was the won in the first half of the year? While each institution's calculation formula differs slightly, the broad consensus was that it was undervalued by around 10%—a figure quite similar to the scale of the won's appreciation over the summer. Among them, DBS had assessed based on its own model that the won was the most undervalued currency in Asia in the first half of the year, but revised that view in the second week of September. It concluded that at around the low 1,300-won range per dollar, the currency has moved close to its fundamentals, and that unless the dollar weakens further, this is a reasonable price level. DBS also took note of the National Pension Service halting its currency hedging in September. It viewed this as a sign that South Korea judges current levels to be a point where it no longer needs to pursue operations to push the won's value higher.
Domestic financial institutions, such as Hanwha Investment & Securities and Eugene Investment & Securities, have also released a series of reports suggesting that even if the won's appreciation continues for a while, the pace is bound to slow down and enter a consolidation phase. They advise that in the longer term, investors should even factor in a rebound in the USD/KRW exchange rate—a scenario where the dollar strengthens once again.
It is taken for granted that semiconductor revenues will continue pouring into South Korea in massive volumes. Domestically, those funds are already fueling brisk capital expenditures. In August, domestic facility investment surged by a staggering 25% compared to a year earlier. This investment will serve as a pillar supporting the South Korean economy next year and in the years that follow.
However, Korean corporations must also continue making overseas investments, including the substantial sums pledged for investment in the United States. Retail demand for dollars also remains persistent. Looking at the current structure of the South Korean economy, much like Japan with its vast overseas assets, Korea has firmly established a structure where a substantial portion of earnings made abroad accumulates directly overseas as dollar assets.
In other words, while the won's undervaluation in the first half of the year was rapidly unwound over the summer and this trend could persist for a bit longer, the current rate in the low 1,300-won range against the dollar does not appear far removed from Korea's economic fundamentals and structural reality. Analysts continue to note that this holds especially true under the condition that U.S. interest rates are held steady, as is widely anticipated, and the dollar's current moderate weakness persists.
Choi Gyu-ho | Senior Analyst at Hanwha Investment & Securities
For a while, the won was driven strictly by supply and demand. Heavy dollar selling emerged, centered on companies like SK Hynix. Now, settlement demand for dollars from importers and bargain hunting have also strengthened, so I believe the timing for a pivot toward dollar buying will gradually arrive. Going forward, the won is likely to maintain mild strength or move within a range-bound box, and once the supply-demand balance reverses, the exchange rate could stage a modest rebound. That is the kind of trend to expect.
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