South Korea’s won completed its biggest weekly loss since May on concern a weak yen will hurt the nation’s exports, and after the government proposed a tax on securities trading to curb speculative flows. Bonds dropped.
A global currency war seems to be breaking out as monetary easing in Japan drags the yen lower, Ha Sung Keun, a Bank of Korea board member, said Jan. 28 in Seoul. The weak yen will affect Korean exports “after some delay,” Deputy Knowledge Economy Minister Han Jin Hyun said today. Global funds cut their holdings of the nation’s stocks for a seventh day, the longest run of reductions since November, exchange data show. Net sales totaled $1.7 billion in January, the most since May.
“The won’s drop this week was largely due to fear stoked by the expectation that the yen would erode the competitiveness of Korea,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. “The mention of a transaction tax on currency trading accentuated the fear factor in the market.”
The currency fell 2.1 percent this week to 1,097.38 per dollar in Seoul, according to data compiled by Bloomberg. It was 0.8 percent weaker on the day, having risen as much as 0.2 percent earlier following the release of better-than-expected export data for January. The yen fell 1.4 percent in the past five days, set for a 12th weekly loss.
The government wants to cut the “vicious cycle” in which fast money flows increase the won’s volatility, Deputy Finance Minister Choi Jong Ku said Jan. 30. One-month implied volatility in the currency, a gauge of expected moves in the exchange rate used to price options, rose 197 basis points, or 1.97 percentage points, this week to 8.60 percent. The gauge climbed 34 basis points today.
South Korean exports rose 11.8 percent in January from a year earlier after a revised 5.7 percent decline in December, the government said in a statement today. The median estimate in a Bloomberg News survey was for an 8.9 percent increase. Consumer prices rose 1.5 percent, Statistics Korea said in a separate report, matching the median estimate in a Bloomberg poll.
“People are still quite antsy about the possibility of the finance ministry slapping on additional capital controls,” said Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong. “And there’s sentiment in the market that dollar-won needs to follow dollar-yen upwards.”
South Korea’s five-year bonds fell for the first week this year. The yield on the 2.75 percent notes due September 2017 climbed eight basis points to 2.90 percent, Korea Exchange prices show. It was up one basis point today.