Won Erases Loss as South Korea Targets Volatility; Bonds Decline

Won Erases Loss as South Korea Targets Volatility; Bonds Decline

The won recovered from a four-week low after South Korea said it will act to curb currency swings amid renewed regional tensions as North Korea fired missiles. Government bonds declined.

Finance Minister Hyun Oh Seok said South Korea should seek to limit the won’s volatility if it intensifies because of the yen’s slide, according to Choi Hee Nam, the ministry’s director general. Financial Services Commission Chairman Shin Je Yoon said today foreign-currency liquidity will be closely monitored as North Korean risks escalate. The North fired a short-range missile for a third day today, the South’s Defense Ministry said. That followed four such tests over the weekend.

The won closed at 1,116.63 per dollar in Seoul, little changed from 1,116.60 on May 16, according to data compiled by Bloomberg. It earlier touched 1,121.08, the weakest level since April 23. South Korean markets were closed on May 17 for a public holiday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 18 basis points, or 0.18 percentage point, to 8.98 percent.

“The authorities expressing concerns about the won’s volatility helped prevent investors from aggressively selling the currency amid missile firings by North Korea,” said Son Eun Jeong, an analyst at Woori Futures Co. in Seoul. “The government seems more concerned about the weak yen hurting the South Korean economy.”

The yen’s depreciation has been much faster than previously anticipated and competitiveness of Korean companies should be strengthened to fight currency volatility, the Finance Ministry’s Choi said.

Yen Moves

The won has fallen 4.7 percent versus the dollar and gained 14 percent against the yen this year. That makes it harder for South Korean exporters such as Samsung Electronics Co. and Hyundai Motor Co. to compete against Japanese rivals overseas. Foreign funds sold $4.7 billion more Korean equities than they bought this year through May 16, exchange data show.

The yen gained 0.6 percent today after reaching 103.31 per dollar on May 17, its weakest level since October 2008, data compiled by Bloomberg show. Citigroup Inc. said in a May 17 research note the yen’s weakness and geopolitical risks were weighing on the won.

South Korea urged the North to accept its repeated calls for working-level talks on bringing completed goods to the South from the Gaeseong industrial zone, the Unification Ministry spokesman Kim Hyung Suk said at a briefing yesterday. The jointly-run factory in the North Korean border city of Gaeseong has been shut since the North decided on April 8 to withdraw all its workers from the complex.

The yield on South Korea’s 2.75 percent government bonds due March 2018 climbed four basis points to 2.69 percent, the highest level since April 17, prices from Korea Exchange Inc. show.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51

To contact the editor responsible for this story: James Regan at jregan19

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