Won Rebounds on Stock Inflows Amid Currency Conflict; Bonds Gain

South Korea’s won rebounded from yesterday’s biggest decline in a week after foreign investors pumped money into local stocks even as the central bank flagged risks to the economy from a weaker yen.

Overseas funds bought $30 million more Korean shares than they sold yesterday, taking inflows this month to $560 million, exchange data show. They pulled $1.7 billion from local equities in January. Almost 58 percent of respondents to the Bank of Korea’s bi-annual survey published yesterday said currency conflict was a risk to the economy.

Equity outflows “appear to have reversed with around $500 million inflows month to date,” Mitul Kotecha, global head of foreign-exchange strategy in Hong Kong at Credit Agricole CIB, wrote in a note to clients today.

The won climbed 0.1 percent to close at 1,081.05 per dollar in Seoul, according to data compiled by Bloomberg. The currency fell 0.4 percent yesterday, the most since Feb. 8. 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, dropped eight basis points, or 0.08 percentage point, to 7.1 percent, data compiled by Bloomberg show.

Officials from Japan, China and South Korea will hold preparatory talks for free-trade agreements on Feb. 20-21, Japan’s foreign ministry said. Bank of Korea Governor Kim Choong Soo said the monetary authority will closely monitor the impact of Japan’s policy stimulus and hopes Japan isn’t deliberately weakening the yen, the Wall Street Journal reported yesterday.

Falling Yen

Korean companies including Hyundai Motor Co. and Samsung Electronics Co. compete against Japanese auto and phone makers in international markets. The yen has dropped 8.3 percent against the dollar this year.

“The currency war will be an issue for Korea-Japan trade, especially if the yen weakness persists,” said Park Sang Hyun, chief economist at HI Investment & Securities Co. in Seoul. “This could continue at least through the first half of this year” before Japan’s upper-house election in July, he said.

The yield on South Korea’s 2.75 percent bonds due September 2017 dropped two basis points, or 0.02 percentage point, to 2.81 percent, Korea Exchange Inc. prices show.

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