Won Strengthens as Yen Rebounds Before G-20 Meeting; Bonds Fall

The won gained on speculation South Korea will refrain from steps to weaken its currency to support exporters, before a meeting of the Group of 20 nations where the yen’s slump may be discussed. Government bonds fell.

The won climbed to a one-week high even after North Korea conducted its third nuclear test since 2006 yesterday. The yen rose for a second day against all of its major peers after Bank of Canada Governor Mark Carney said yesterday industrial nations will pressure other G-20 economies to avoid targeting exchange rates, adding that Japan’s currency policy will be discussed this week. The won rallied more than 17 percent in the past three months versus the yen, making the nation’s exports less competitive against Japanese products.

“The won is stronger because of the yen’s rebound” before the G-20 meeting, said Han Chi Hwan, a strategist in Seoul at KDB Daewoo Securities Co. “There will be efforts to try to end yen weakness, but it will take several months to reverse it.”

The won gained 0.4 percent to close at 1,086.94 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,084.07 earlier, the highest level since Feb. 6. One-month implied volatility for the won, a measure of expected moves in exchange rates used to price options, fell 33 basis points, or 0.33 percentage point, to 7.62 percent.

The Group of Seven finance ministers and central bank governors pledged yesterday to avoid devaluing their exchange rates in the pursuit of stronger economic growth. The yen has weakened 7.6 percent against the dollar this year, the most in Asia. G-20 leaders meet in Moscow this weekend.

South Korean Finance Minister Bahk Jae Wan said Jan. 23 the government was “all ready” to intervene and smooth currency-market volatility as the yen slides.

‘Little Impact’

The Kospi index of shares jumped 1.6 percent, the biggest gain since Jan. 2. Global funds bought more local shares than they sold for a third day through yesterday. Vice Finance Minister Shin Je Yoon said today North Korea’s nuclear test had “limited” effect on markets.

“Since the G-7 has publicly announced its concern over the yen, it’s likely the issue will be addressed at the G-20 summit,” Yoo Hyen Jo, an analyst at Shinhan Investment Corp., wrote in a research note today. The won may gain “keeping an eye on the dollar-yen rate,” he wrote.

Government bonds dropped before the Bank of Korea reviews monetary policy tomorrow. The central bank will keep its seven-day repurchase rate unchanged for a fourth month at 2.75 percent, according to 14 of 15 economists surveyed by Bloomberg News. One predicts a cut to 2.5 percent.

The yield on South Korea’s 2.75 percent bonds due September 2017 rose three basis points to 2.86 percent, Korea Exchange Inc. prices show. The government sold new five-year bonds yesterday at an average yield of 2.83 percent.

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