Korean Won Erases Loss as Yen Rebounds on BOJ Proposal

South Korea’s won erased losses, rebounding from this month’s low, as the yen strengthened after the Bank of Japan said it will wait until next year to begin open-ended asset purchases. Government bonds rose.

Japan’s central bank adopted a 2 percent inflation target after its policy meeting today and said it will buy 13 trillion yen ($145 billion) of assets a month from January 2014 to lift the economy out of deflation. The won earlier fell to this month’s low as global funds sold more Korean equities than they bought and Finance Minister Bahk Jae Wan said today currency appreciation could hurt exporters such as automakers.

“The detail of the BOJ easing is a little underwhelming in terms of the timing and quantum, which led to some corrections in the dollar-yen and won levels,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “The won today reflects adjustments to market positions, and may not be related to fundamentals.”

The won closed at 1,062.30 per dollar, little changed from 1,062.88 yesterday, according to data compiled by Bloomberg. It dropped as much as 0.5 percent to 1,066.77, the weakest since Dec. 31. The currency touched 1,054.49 on Jan. 15, a level not seen since August 2011, after rallying 8.3 percent in 2012.

Before today’s meeting, the yen had lost 6 percent against the dollar in the past month amid speculation that the BOJ would unveil a new round of asset purchases to drag Japan’s economy out of its third recession since 2008.

Most Vulnerable

“The market is watching the dollar-yen movement and if it worsens, the situation for Korean carmakers will deteriorate,” said Lee Jin-Ill, a currency trader in Seoul at Hana Bank. “The central bank tries to intervene at 1,055.”

The won’s near-term appreciation may be limited by the hit to the nation’s export competitiveness as the yen slumps, Barclays Plc said in a report on Jan. 17. The won is “the most susceptible” to yen weakness versus its regional peers and risks central bank intervention, the bank said.

The won fell 0.6 percent yesterday, the biggest loss since Sept. 20, as foreign investors pared their stock holdings. Net sales totaled $169 million yesterday and $466 million last week, exchange data show.

Higher Volatility

One-month implied volatility in the won, a gauge of expected moves in exchange rates used to price options, jumped 40 basis points, or 0.40 percentage point, to 5.90 percent, according to data compiled by Bloomberg. It touched 6.05 percent, the highest since Nov. 16.

Bahk said today the won’s volatility will affect earnings forecasts by local automakers. The government will increase financial support for small- to mid-sized companies to hedge their currency risks, the ministry said in a statement.

South Korea is studying various measures to reduce volatility in capital flows and currency movements, Vice Finance Minister Shin Je Yoon said Jan. 16. Central bank Governor Kim Choong Soo said Jan. 14 the nation will take an “active” response on the won if needed.

The yield on South Korea’s 2.75 percent bonds due September 2017 dropped one basis point to 2.84 percent, Korea Exchange prices show.S

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