S. Korea Fires Warning Shot to Japan: We’re Watching Yen-Won

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Japan Prime Minister Shinzo Abe
The won has gained about 40 percent against the yen since Japanese Prime Minister Shinzo Abe took office in late 2012. Photographer: Jeff Chiu/AP/Pool via Bloomberg

South Korea’s top currency official fired a warning to Japan: his nation has stepped up scrutiny of the yen’s tumble against the won after damage to exporter earnings.

“Korean companies face bigger difficulties this year than last,” said Song In Chang, the ministry’s director general in charge of foreign exchange market policies. “What’s different is that we have been paying attention to the won-yen rate since last year, whereas the won-dollar was our main focus before that.”

The currency’s gains against the euro have also caught Song’s attention, he said in an interview at Sejong, south of Seoul, on April 30.

The won is at its strongest level against the yen and the euro since at least 2008, putting pressure on exports that have fallen for four straight months this year, the longest streak since 2009. Companies from Hyundai Motor Co. to LG Electronics Co. and Samsung Electronics Co. reported earnings last month that declined from a year ago and all three said the currency’s strength contributed to the results.

The won fell 0.8 percent to 1,080.82 per dollar as of 10:47 a.m. in Seoul today, from Thursday’s close of 1,072.29, according to data compiled by Bloomberg. Markets were closed in Seoul on Friday. The won fell 0.2 percent against the yen.

The yield on South Korean government notes due December 2017 rose 5 basis points to 1.89 percent, the highest since March 12, Korea Exchange prices show.

Song said that while the government doesn’t target any specific level for the won, it could “fine-tune” movements to ease any “herd behavior” in the currency. The won has gained about 40 percent against the yen since Japanese Prime Minister Shinzo Abe took office in late 2012. It’s up about 17 percent versus the euro and little changed against the dollar over the same period, according to data compiled by Bloomberg.

Dollar Movement

“Last year, the won’s declines against the dollar offset the impact from the gains against the yen, but this is no longer the case,” said Song, 53. Still, South Korea has no intention of intervening in the currency market for the sake of exporting companies, Song said.

Hyundai Motor cited weakening of the euro and other emerging-market currencies for profit declines in the first quarter. LG Electronics last week said its first quarter sales growth was marginal due to negative currency impact.

That’s a notable contrast to Toyota Motor Corp., Japan’s biggest company, which is forecasting a second-straight record annual profit as it benefits from a weaker yen.

South Korea’s trade ministry said on May 1 that the weakening of the yen and the euro has hurt exporters from carmakers to machinery manufacturers. Shipments to Japan fell

12.6 percent in April from a year earlier while exports to Europe dropped 11.9 percent.

Separately, Song said the government may sell yuan-denominated bonds for the first time.

“We may issue if we need to set benchmark costs for local companies,” Song said, without giving further details.

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