Korean Won Falls as Yen Decline Prompts Concerns of Intervention

The won dropped for the first time in a week as the yen’s decline following the Group of 20 nations meeting sparked concern South Korea will step in to weaken its currency to support exports. Government bonds gained.

The yen fell against the dollar and the won after the G-20 refrained from censuring Japanese policies that have driven the currency’s decline. Bank of Korea Governor Kim Choong Soo said in an interview with the Wall Street Journal in Moscow that the monetary authority will closely monitor the impact of Japan’s policy stimulus on the South Korean economy.

“There were expectations the G-20 would comment on the Japanese currency and that didn’t happen,” said Jeon Seung Ji, an analyst at Samsung Futures Inc. in Seoul. “That’s prompting the drop in the won, which had gained a lot” before the meeting, she said.

The won fell 0.4 percent to close at 1,082.10 per dollar in Seoul, according to data compiled by Bloomberg. It gained 1.6 percent last week, the biggest five-day advance since the period ended Dec. 2, 2011.

One-month implied volatility for the won, a measure of expected moves in the exchange rate used to price options, gained 20 basis points, or 0.20 percentage point, to 7.23 percent, data compiled by Bloomberg show.

Two days of talks between G-20 finance ministers and central bankers ended in Moscow Feb. 16 with a statement that pledged not to “target our exchange rates for competitive purposes,” without singling out Japan. Bank of Korea’s Kim said in the WSJ interview that he hopes the yen isn’t being deliberately weakened.

Producer Prices

Against its Japanese counterpart, the South Korean currency advanced for a third week last week. It appreciated 1.3 percent today, the most since Feb. 4, to 11.52 per yen. A stronger won erodes the competitiveness of exports from companies such as Hyundai Motor Co. and Samsung Electronics Co. Finance Minister Bahk Jae Wan said Jan. 23 the government was “all ready” to intervene and smooth currency-market volatility as the yen slides.

The Bank of Korea bought the U.S. currency on Feb. 15 to prevent the won from appreciating, Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., said in a Feb. 16 research note. Improving stock market inflows may suggest traders are beginning to recognize that officials are indeed committed to keeping exports competitive, he wrote.

The gain in the won helped South Korea’s producer prices to fall 1.6 percent in January from last year, the most in more than three years, a central bank report showed today.

South Korea’s incoming President Park Geun Hye yesterday named Hyun Oh Seok, head of the Korea Development Institute, as finance minister.

Economic Recovery

“The short-term challenge is how to secure a rapid economic recovery,” Hyun said at a briefing in Seoul yesterday, without commenting on the currency or fiscal stimulus. “The long-term challenge is how to coordinate between growth and welfare and improve our growth potential.”

The yield on South Korea’s 2.75 percent notes due 2017 dropped one basis points to 2.83 percent, Korea Exchange Inc. prices show.

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