Won Climbs Most in a Week as BOJ's Surprise Sparks Rally in Yen

  • South Korean government bonds advance for a third day
  • Dovish Federal Reserve stance gives BOK room to cut: analyst

South Korea’s won climbed the most in more than a week as the Bank of Japan’s decision to hold off on expanding monetary stimulus sparked a rally in the yen.

The Japanese currency surged as BOJ Governor Haruhiko Kuroda and his colleagues opted to take more time to assess the impact of negative interest rates. The lack of a move surprised markets after a slight majority of economists surveyed by Bloomberg had projected increased stimulus. South Korean auto and electronics companies compete in international markets with Japanese counterparts, and exchange-rate disparities can affect competitiveness.

“The won is tracking gains in the yen,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong.

The won jumped 0.9 percent, the most since April 19, to close at 1,138.10 per dollar, data compiled by Bloomberg show. The yen climbed 2.6 percent to 108.62 versus the greenback.

Easing Bets

South Korean bonds rose after a dovish Federal Reserve spurred bets of more interest-rate cuts at home.

U.S. central bankers skipped a rate hike for the third straight meeting since kicking off the tightening cycle in December. The Fed continues to signal it will proceed gradually amid slow, steady growth in the world’s largest economy. That leaves the Bank of Korea room to lower borrowing costs, according to NH Investment & Securities Co., by reducing the risk of excessive capital outflows. Nine of 22 economists surveyed by Bloomberg expect a cut this quarter.

The 10-year government bond yield fell for a third day, dropping one basis point to 1.80 percent, the lowest close since April 12, Korea Exchange prices show. The yield on three-year notes also declined one basis point to 1.45 percent.

The Federal Open Market Committee’s “comments came out more dovish than expected,” said Park Jong Youn, a fixed-income analyst at NH Investment in Seoul. “This gives the BOK a good reason to cut the benchmark rate. After all, domestic circumstances are calling for it as well.”

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