Korean Won Drops on Intervention Risk as Yen Falls; Bonds Steady

South Korea’s won snapped a four-day gain, retreating from near a two-year high, on concern policy makers will curb its rally to protect exports. Government bonds were steady.

The currency dropped, after rising to within 0.1 percent of the highest level since August 2011 that was reached Oct. 24, as the Japanese yen traded near a two-month low. South Korean authorities are concerned that the won’s volatility has been drastic and that its moves have been one-sided, Yonhap News reported today, citing an unnamed Bank of Korea official.

“The Korean economy is on a recovery path so there’s a risk of market intervention to preserve export competitiveness,” said Park Sang Hyun, chief economist in Seoul at HI Investment & Securities Co. “We may see won gains being capped at 1,050 through year-end” if the yen continues to weaken, he said.

The won fell 0.2 percent to 1,058.09 per dollar in Seoul, according to data compiled by Bloomberg. It earlier touched 1,054.90, approaching the two-year high of 1,054.35 on Oct. 24. One-month implied volatility in the won, a measure of expected moves in the exchange rate used to price options, declined seven basis points, or 0.07 percentage point, to 5.99 percent.

Companies including Hyundai Motor Co. and Samsung Electronics Co. compete with Japanese carmakers and television manufacturers in overseas markets. The yen fell below 100 per dollar on Nov. 14 for the first time in two months.

External Debt

South Korea’s external debt maturing in one year or less fell to $111.5 billion at the end of September from three months earlier as banks repaid borrowings, the Bank of Korea said in a statement today. Total liabilities rose to $411 billion in the same period as foreign investors bought more government and central bank bonds, according to the statement.

The nation’s inflation is lower than expected and the issue is how to boost it to an appropriate level, central bank Governor Kim Choong Soo said in Seoul today. Currencies are increasingly volatile due to the U.S. stimulus policy known as quantitative easing, he said.

The yield on South Korea’s 2.75 percent sovereign bonds due June 2016 was unchanged at 2.95 percent, according to Korea Exchange Inc. prices. The rate has climbed 13 basis points so far in November.

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