(Bloomberg) -- The South Korean won’s correlation with the yen has risen to the highest level in more than nine months as traders await a potentially historic policy decision by the Bank of Japan.

The currencies of the neighboring nations are moving more in tandem as the BOJ is widely expected to abolish its negative-interest-rate policy when its two-day meeting ends Tuesday. The 60-day correlation between the won and yen rose to 0.35 this month, the highest since May 2023. A reading of 1 would mean the two move in lockstep.

The looming BOJ decision is focusing investors around the region on the reaction of the yen because of the potential for it to impact other Asian currencies. The won and yen have long had a relatively high correlation because the two countries compete in export markets.

“The won is still likely more linked to the dollar than the yen, but due to BOJ, the yen has been a key trigger among major currencies, causing the dollar-won to fluctuate accordingly,” said Min Gyeong-won, an economist at Woori Bank. As a result, “the won is seen moving in line with the yen.”

Not everyone expects the BOJ decision to have a major impact on the yen, or other Asian foreign-exchange markets. Even if Japanese policymakers raise rates Tuesday, there will still be a relatively wide rate deficit versus other major central banks, and that will deter fund inflows.

Read more: BOJ Rate Hike on Tuesday Is Now Widely Expected After Wages Jump

The market is pricing in a BOJ policy rate of 0.27% by year-end, compared with the current level of -0.1%, according to swaps data compiled by Bloomberg. Similar pricing for the Federal Reserve is 4.62%, versus the present 5.50%. That means Japan’s rate differential with the U.S. will still be around 4.3% by the end of December.

“The market implied rate is showing the BOJ’s slow pace of hikes which won’t be enough to support the yen,” said Paik Seokhyun, an analyst at Shinhan Bank in Seoul. 

“There will be some volatility immediately after the rate decision, but given that it is already priced into the market, we expect a slight weakening of the yen if the BOJ decides to hike,” he said. “The impact on the won should be negligible for the time being.”

(Corrects to add decimal point in sixth paragraph)

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