Won Set for Third Weekly Drop on Yen, Trading Tax; Bonds Decline
South Korea’s won headed for a third straight weekly decline 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 fell.
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. Japan and South Korea compete in the world market for electronic products and autos. The government wants to cut the “vicious cycle” in which fast money inflows increase the won’s volatility, Deputy Finance Minister Choi Jong Ku said Jan. 30.
“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 1.2 percent this week to 1,087 per dollar as of 9:54 a.m. in Seoul, according to data compiled by Bloomberg. It rose 0.1 percent today. One-month implied volatility in the won, a gauge of expected moves in the exchange rate used to price options, rose 143 basis points, or 1.43 percentage points, this week to 8.05 percent. The gauge dropped 20 basis points today.
Global funds sold $616 million more Korean shares than they bought this week through yesterday, boosting this year’s net sales to $1.7 billion.
South Korean exports rose 11.8 percent in January 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 last month from a year earlier, Statistics Korea said in a separate report, matching the median estimate in a Bloomberg News survey.
“Exports came in stronger than consensus and it shows the fears over the weaker yen are unfounded,” Leong said. “The benign inflation print we’re seeing is conducive for asset markets in Korea.”
The yield on South Korea’s 2.75 percent government bonds due September 2017 climbed seven basis points this week to 2.89 percent and was unchanged today, Korea Exchange prices show.
To contact the reporter on this story: Lilian Karunungan in Singapore at firstname.lastname@example.org