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Korean Won Trades Near 3-Month Low on Yen Concern; Bonds Advance

The won traded near a three-month low on concern Japan will let its currency weaken further with the imminent departure of its central bank chief, making it harder for South Korean exporters to compete. Government bonds rose.

Bank of Japan Governor Masaaki Shirawaka said yesterday he will step down March 19, in a move seen aiding Japanese Prime Minister Shinzo Abe’s campaign for more aggressive monetary easing. The Kospi Index of stocks fell 3.3 percent in 2013 as the won’s 6 percent gain against the yen hurt earnings outlooks at Samsung Electronics Co. and Hyundai Motor Co., while benefiting Toyota Motor Corp. North Korea’s next nuclear test may happen at “any time,” a South Korean defense official said today.

“It’s a choppy market as the change at BOJ seems to indicate that the yen weakness, or competitive devaluation, isn’t over yet,” said Irene Cheung, a strategist at Australia & New Zealand Banking Group. in Singapore. “There are definitely stock outflows. The North Korea issue doesn’t help.”

The won was little changed to 1,087.90 after falling as much as 0.3 percent in Seoul, according to data compiled by Bloomberg. The currency touched 1,098.25 on Feb. 1, the weakest level since October. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 10 basis points, or 0.1 percentage point, to 7.53 percent.

The won fell 0.2 percent to 11.63 per yen today, snapping a four-day advance. The South Korean currency reached 11.59 yesterday, the strongest level since October 2008, according to data compiled by Bloomberg. The government is “all ready” to intervene and smooth currency-market volatility, Finance Minister Bahk Jae Wan said Jan. 23.

Foreign Funds

Foreign funds sold about $40 million of South Korean stocks yesterday, according to exchange data. They pulled 1.9 trillion won ($1.7 billion) in January, the most since May, the Financial Supervisory Service said Feb. 5.

North Korea’s next nuclear test may involve several detonations to showcase its improved capability, General Jung Seung Mo, chairman of South Korea’s Joint Chiefs of Staff, told lawmakers in Seoul today. It may happen at “any time” based on leader Kim Jong Un’s decision, he added.

Five-year bonds gained. The yield on South Korea’s 2.75 percent bonds due September 2017 dropped two basis points to a two-week low of 2.84 percent, according to prices from Korea Exchange. The treasury will auction 1.4 trillion won of five-year notes on Feb. 12.

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