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Korean Won Rises to 13-Month High on BOJ Stimulus Speculation

Oct. 25 (Bloomberg) -- South Korea’s won rose to the highest level in 13 months as speculation that Japan’s central bank will ease monetary policy next week increased demand for riskier assets.

The yen fell to a four-month low after the Nikkei newspaper reported the Bank of Japan will consider increasing its asset-purchase program by 10 trillion yen ($125 billion) at the Oct. 30 policy meeting. The MSCI Asia Pacific Index of shares extended gains and the Kospi index reversed earlier declines to close 0.6 percent higher. A South Korean government report tomorrow may show the nation’s economy expanded 1.7 percent in the third quarter, the slowest pace in three years, according to a Bloomberg survey of forecasters.

“Speculation about BOJ easing supported riskier assets such as Asian stocks and the won,” said Cho Young Bok, a Seoul-based currency dealer for Daegu Bank. “There were some South Korean exporters selling the dollar to convert income, and the government didn’t show a strong will to keep the won from strengthening beyond the 1,100 per dollar level.”

The won rose 0.5 percent to 1,098.05 per dollar at the close in Seoul, according to data compiled by Bloomberg. The currency touched 1,097.68 earlier, the strongest level since Sept. 14, 2011. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 26 basis points, or 0.26 percentage point, to 5.78 percent.

Capital Flows

South Korea’s strong fiscal position has helped eased currency volatility, and the government doesn’t plan to increase controls on capital flows, Finance Minister Bahk Jae Wan said today. The cost of processed foods is prompting concerns about price instability and inflation, he said earlier at a government meeting.

The nation’s industrial output probably grew 1 percent in September, the most in three months, a Bloomberg News survey showed before data due next week. Finance Minister Bahk said in a Bloomberg News interview on Oct. 9 that economic growth reached a “bottom” in the third quarter.

The yield on the government’s 3.25 percent bonds due June 2015 was little changed at 2.81 percent, Korea Exchange Inc. prices show. The one-year interest-rate swap slid one basis point to 2.77 percent.

“Investors are waiting for the government’s outlook tomorrow for fourth quarter growth, which will help gauge whether South Korea’s economy will rebound,” said Lee Hak Seoung, a fixed-income analyst at Tong Yang Securities Inc. in Seoul.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

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

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