South Korea’s won completed the worst week in more than a month on speculation authorities will weaken the currency to safeguard exports after the yen slumped to a four-year low. Government bonds declined.
The Financial Services Commission will monitor market risks including the weak yen and take preemptive measures if needed, it said in an e-mailed statement today. Finance Minister Hyun Oh Seok said companies should strengthen their competitiveness as the Japanese currency is likely to stay low for “quite some time,” according to a Yonhap News report yesterday. Local markets will close tomorrow for a public holiday.
“Although it’s still uncertain, there’s speculation on possible intervention by the authorities,” said Son Eun Jeong, an analyst at Woori Futures Co. in Seoul. “Because of global monetary easing policies, investors are looking for riskier assets for profit, which may support the won.”
The won fell 0.9 percent this week to 1,116.6 per dollar in Seoul, the biggest weekly drop since the period ended April 5, according to data compiled by Bloomberg. It touched 1,118.96 today, the weakest level since April 24. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 86 basis points this week and 21 basis points today to 8.5 percent.
The yen reached 102.76 per dollar yesterday, the weakest level since October 2008, and was trading at 102.42 today, data compiled by Bloomberg show. The won rallied 13 percent against the yen this year and fell 4.7 percent versus the dollar.
That makes it harder for Korean exporters such as Samsung Electronics Co. and Hyundai Motor Co. to compete against Japanese rivals overseas. Foreign funds sold $5 billion more Korean equities than they bought this year through yesterday, data show.
Japan’s aggressive monetary easing has a “big impact” on South Korea’s economy, Bank of Korea Governor Kim Choong Soo said last week after the central bank unexpectedly cut its benchmark seven-day repurchase rate by a quarter percentage point to 2.5 percent.
South Korean producer prices fell 2.8 percent in April from a year earlier, the most since October 2009, according to central bank data released today.
The yield on South Korea’s 2.75 percent government bonds due March 2018 climbed two basis points, or 0.02 percentage point, this week to 2.65 percent, prices from Korea Exchange Inc. show. It fell one basis point today.
To contact the reporter on this story: Yewon Kang in Seoul at firstname.lastname@example.org