Korea Won Falls Most in a Week Ahead of FOMC Meeting; Bonds Rise

South Korea’s won fell the most in a week as investors assess the odds of a reduction in U.S. economic stimulus before the Federal Reserve reviews policy. Government bonds advanced.

Asia’s fourth-largest economy must boost its ability to prevent and cope with any crisis stemming from policy changes in the U.S. and other advanced economies, the Bank of Korea said in a report submitted to parliament yesterday. The Federal Open Market Committee begins its two-day policy meeting today, almost a month after Fed Chairman Ben S. Bernanke said asset purchases could be scaled back should the U.S. employment outlook show “sustainable improvement.”

The won fell 0.4 percent to 1,130.96 per dollar in Seoul, the biggest drop since June 11, according to data compiled by Bloomberg. The currency touched 1,137.75 on June 11, the lowest level since April 10. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell six basis points, or 0.06 percentage point, to 10.39 percent.

“The won fell on concern the Fed’s possible early exit from its stimulus measures may prompt outflows from emerging markets,” said Han Sung Min, a currency trader at Busan Bank in Seoul. “The won’s fall may be limited as investors are in a wait-and-see mode ahead of the FOMC meeting.”

Investors have been monitoring U.S. economic reports to determine whether growth is strong enough to prompt the Fed to rein in its program of buying $85 billion of debt a month. The FOMC may add language in this week’s statement that details timing and pace of tapering its stimulus measures, Ward McCarthy and Thomas Simons, economists at Jefferies Group LLC, wrote in a June 14 note to clients.

Amending Bills

South Korea plans to amend bills that may “excessively” hamper business activities, Finance Minister Hyun Oh Seok said in a meeting in Seoul today with the heads of the National Tax Service, Fair Trade Commission and the Korea Customs Service.

Local producer prices fell 2.6 percent in May from a year earlier, an eighth straight decline, as the costs of raw materials such as crude oil dropped, Bank of Korea said in an e-mailed statement today.

The yield on the 2.75 percent sovereign bonds due March 2018 fell two basis points to 2.98 percent, prices from Korea Exchange Inc. show.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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