Korean Won Falls as Yen Slump Fans Intervention Risk; Bonds Rise

The won fell toward a three-month low as the yen’s slide to the weakest level in almost three years fanned concern South Korea will intervene to protect exports. Government bonds gained.

The won rose 17 percent against the yen in the past three months as Japanese Prime Minister Shinzo Abe championed a weaker currency to revive growth in the world’s third-largest economy. Funds including those managed by Pioneer Investments have sold Korean equities as Samsung Electronics Co. and Hyundai Motor Co. lose competitiveness to Japanese rivals in export markets.

“People are selling the won given that its performance has reversed this year versus 2012,” said Lee Eung Joo, a currency trader in Seoul at Daegu Bank. “It’s not that the Korean economy is suddenly doing badly. You are going to hear more verbal intervention from the bureaucrats about the yen-won levels.”

The won dropped 0.1 percent to 1,088 per dollar, according to data compiled by Bloomberg. The currency touched 1,098.25 on Feb. 1, the weakest level since October. It may reach 1,100 this month, Lee said. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped eight basis points to 7.45 percent.

Toyota Motor Corp., the world’s biggest carmaker, yesterday raised its profit forecast by 10 percent to 860 billion yen ($9.2 billion) for the 12 months through March 2013, a five-year high. Samsung, the biggest smartphone maker, said on Jan. 25 that the won’s strength could erode its operating profit by 3 trillion won ($2.8 billion) this year.

Intervention Risk

The won rallied 0.8 percent to 11.60 per yen today and earlier reached 11.59, 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 on Jan. 23.

Overseas funds pulled 1.9 trillion won from South Korean stocks in January, the most since May, the Financial Supervisory Service said yesterday. The won has lost 2.1 percent versus the dollar this year, the worst performer among Asia’s 10 most-traded currencies excluding the yen. It climbed 8.3 percent in 2012, the leading gains in the region.

The government’s five-year bonds gained for a third day. The yield on South Korea’s 2.75 percent bonds due September 2017 dropped two basis points, or 0.02 percentage point, to 2.86 percent, according to prices from Korea Exchange.

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