South Korea and Japan's highest-ranking foreign exchange officials met in Tokyo on Friday to discuss avenues for enhancing bilateral cooperation. According to a statement from South Korea's finance ministry, Vice Finance Minister Moon Jisung held talks with Japan's Vice Finance Minister for International Affairs Atsushi Mimura.

The two sides exchanged views on recent developments in the global economy and financial markets, outlining their respective policy responses. They also aligned their positions on issues within multilateral frameworks such as ASEAN+3 and the G20, and discussed the 11th South Korea-Japan Finance Ministers' Meeting, which is set to be hosted by Seoul. Both officials affirmed their commitment to maintaining close communication at both working and senior levels.

This meeting marks the first high-level bilateral contact between the two nations since the coordinated action on July 31. Just three weeks prior, the U.S. and Japan had engaged in a rare coordinated foreign exchange intervention, which triggered significant volatility in regional currency markets and helped bolster the strength of both the South Korean won and the Japanese yen.

Moon Jisung noted on July 31 that the foreign exchange authorities of the United States, South Korea, and Japan were maintaining close communication. Although Moon declined to confirm whether South Korea had also intervened, media reports, citing an unnamed market source, indicated that South Korean authorities had sold U.S. dollars.

Interestingly, while the yen and the won moved in tandem for two days following the late-July intervention, the two currencies have since diverged in their trajectories. As of this writing, the yen is trading at 158.6 per dollar, having given back a portion of its intervention-driven gains, with the U.S.-Japan interest rate differential and concerns over Japan's fiscal outlook continuing to weigh on the currency.

The won, however, has continued its upward momentum, breaking through the key 1,400 per dollar level for the first time in over ten months this week. It currently stands at 1,385.15 per dollar, marking its strongest level in 11 months.

With the yen again approaching the critical 160 per dollar threshold, its near-term trajectory will be shaped not only by potential intervention and fiscal concerns but also by the Bank of Japan's policy moves. Many speculators believe the central bank is under pressure to raise interest rates in coordination with government intervention efforts. Reports indicate that the Japanese government and the central bank have reached a consensus that "a rate hike is necessary in the near term." Should sustained yen weakness and accelerating inflation prompt the Bank of Japan to act more swiftly, the yen could gain stronger support. Overnight indexed swap market pricing suggests an approximately 80% probability of a rate hike at the central bank's September meeting.

Meanwhile, unprecedented shareholder return programs by South Korea's two major memory chip giants are emerging as a key factor influencing the won's trajectory. If these companies raise funds through the local currency market to finance these programs, the won could extend its recent rally. SK Hynix announced on Wednesday plans to buy back and cancel 40 trillion won (approximately $28.6 billion) in shares, while allocating over 50% of free cash flow generated between 2025 and 2027 to enhance shareholder returns.

According to sources familiar with the matter, SK Hynix has also agreed in a preliminary wage agreement to distribute 60% of this year's employee bonuses in company stock, with the remaining 40% paid in cash. Additionally, Samsung Electronics' board convened today to approve its 2026 shareholder return program, expected to total approximately 90 trillion won to 110 trillion won.

Investors are closely monitoring how much demand these shareholder return programs from SK Hynix and Samsung Electronics will generate for the won, and ultimately how much of those funds will be repatriated abroad by overseas shareholders. Citigroup estimates that roughly half of these shareholder return funds could be converted back into U.S. dollars if foreign equity investors remit their proceeds home.

However, Citigroup Korea chief economist Kim Jin-wook wrote in a report that these shareholder return programs should still be a net positive for the won, as these companies will need to convert more of their export earnings into the currency. He added that robust exports, dollar financing, active currency conversion by the private sector, and hedging operations all combine to form supportive factors for won appreciation.