South Korea’s won rose toward a 15-month high and government bonds fell on speculation Japan will step up monetary easing after Japan’s Liberal Democratic Party reclaimed power in yesterday’s elections.
The yen fell to its weakest level since April 2011 versus the dollar, while the won appreciated against the yen for a ninth day. Shinzo Abe’s LDP is proposing a “large scale” supplementary budget to stimulate the economy, according to election pledges posted on its website. South Korea’s central bank Governor Kim Choong Soo said last week that “appropriate” action on won volatility will be taken if needed.
“Investors are doing cross trades of selling the yen and buying the won, and expectations for further monetary easing by Japan are also supporting the won on inflows optimism,” said Byeon Ji Young, a Seoul-based currency analyst for Woori Futures Co. “Still, won appreciation is being limited near the 1,072 per dollar level on government intervention concerns.”
The won appreciated 0.2 percent to 1,073 per dollar as of 9:33 a.m. in Seoul, according to data compiled by Bloomberg. The currency touched 1,071.08 on Dec. 13, the strongest level since Sept. 8, 2011. One-month implied volatility, a measure of expected moves in exchange rates used to price options, slid 10 basis points, or 0.10 percentage point, to 4.75 percent.
The yield on South Korea’s 2.75 percent bonds due September 2017 increased one basis point to 3.01 percent, Korea Exchange Inc. prices show. The one-year interest-rate swap was little changed at 2.82 percent.
South Koreans vote Dec. 19 to replace President Lee Myung Bak, whose five-year term ends in February. Candidate Lee Jung Hee abandoned the race yesterday, providing a boost for main opposition contender Moon Jae In as he trails the front-runner from the ruling New Frontier Party by less than 1 percentage point.