Won Drops on Export Data, Tensions With North Korea; Bonds Fall

South Korea’s won fell to a one-week low after exports barely grew in March and as worsening relations with North Korea heightened the risk of conflict. Government bonds dropped.

Overseas sales rose 0.4 percent from a year earlier, less than the 1.8 percent gain forecast in a Bloomberg survey, data showed today. Consumer prices climbed 1.3 percent, the least since August, according to a separate report. North Korea said on March 30 that a “state of war” exists with the South and threatened to shut a jointly run industrial zone in its border city of Gaeseong. Tensions have been rising since North Korea detonated a nuclear device in February and the U.S. and South Korea began military exercises last month.

“A less-than-expected export growth and concerns stemming from North Korea are both negative for the won,” said Jeon Seung Ji, analyst at Samsung Futures Inc. in Seoul. “Still, a trade surplus and exporters’ dollar sales may keep the won from falling further.”

The won was 0.3 percent weaker at 1,114.73 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,116.88, the weakest since March 22. One-month implied volatility in the currency, a measure of expected moves in the exchange rate used to price options, increased 47 basis points, or 0.47 percentage point, to 7.91 percent.

Exports, Inflation

Exports climbed less than economists forecast in March as a weaker yen made Japanese cars and electronics more competitive in global markets. Still, South Korea’s imports fell 2 percent from a year earlier and the trade surplus widened to $3.4 billion from $2 billion in February.

The won strengthened 20 percent against the yen in the past six months, according to data compiled by Bloomberg. South Korea’s economy expanded last year at the slowest pace since 2009 and President Park Geun Hye’s government has pledged to unveil new stimulus measures this month after cutting the 2013 growth forecast to 2.3 percent from 3 percent last week.

Finance Minister Hyun Oh Seok said in Seoul today he’s concerned how yen weakness may affect Korea’s overseas sales, adding policy makers will monitor the Japanese currency’s impact “at all times.”

“The yen’s weakness against the won hasn’t made a significant dent on Korean economic data, but it will certainly happen if the trend continues,” said Son Eun Jeong, analyst at Woori Futures Co. “People expect the economy to get worse and are waiting for the government’s stimulus measures.”

The yield on the government’s 2.75 percent bonds due March 2018 gained five basis points to 2.57 percent, according to prices from Korea Exchange Inc.

South Korea’s consumer prices rose 1.3 percent in March from a year earlier, government data showed today. Economists expected a 1.8 percent increase, based on the median forecast in a Bloomberg survey.

The data “may increase speculation that the Bank of Korea will cut rates soon,” strategists at Westpac Banking Corp. wrote in a research note today.

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