South Korea’s won yesterday posted its biggest three-day loss in 16 months as a divergence in US and Japanese monetary policy supported the US dollar.
The US currency rose to ￥112.99, the strongest since December 2007, after the Bank of Japan (BOJ) on Friday last week unexpectedly said that it would seek to expand its monetary base by ￥80 trillion (US$710 billion) a year from the previous ￥70 trillion.
US Federal Reserve officials last week said that they would end their bond-buying program as planned. South Korea’s trade surplus last month widened to a record US$7.5 billion, official data showed on Saturday.
The won fell 0.4 percent to 1,072.69 per US dollar at the close in Seoul, according to prices compiled by Bloomberg. That took its decline in the past three days to 2.4 percent, the most since June last year. The currency strengthened to 9.46 against the yen, the highest since 2008, before trading at 9.52.
“The [US] dollar-won rate is moving in line with the [US] dollar-yen rate, and a weaker yen indicates South Korea authorities will be keen to depreciate the won,” Busan Bank currency trader Lee Hyun-kyung said. “The trade data may lead to some [US] dollar selling, but this won’t be enough to curb the won’s weakening trend.”
The BOJ’s expansion of monetary stimulus came earlier than market expectations, Bank of Korea (BOK) Governor Lee Ju-yeol said to reporters in Seoul, adding that South Korea plans to closely monitor its impact on the economy. The central bank said in a statement that it plans to seek to prevent expectations in the currency market from tilting in one direction.
One-month implied volatility in the won, a gauge of expected swings used to price options, advanced 46 basis points, or 0.46 percentage point, to 8.42 percent.
South Korea’s exports rose 2.5 percent last month from a year earlier, more than the 1.4 percent gain estimated. A purchasing managers’ index for South Korean manufacturing fell to a four-month low of 48.7 last month, according to data released by HSBC Holdings PLC and Markit Economics yesterday.
“The BOK will certainly remain at risk of dovishness now considering the BOJ effect, and that the just-released October manufacturing PMI has marginally ticked down to 48.7,” Hong Kong-based Scotiabank currency strategist Sacha Tihanyi wrote in a research note yesterday.
Consumer prices in Asia’s fourth-biggest economy probably rose 1.3 percent last month from a year earlier, according to a Bloomberg survey, trailing the BOK’s 2.5 percent to 3.5 percent target.
The yield on the 2.75 percent government bonds due June 2017 declined one basis point to 2.12 percent, Korea Exchange prices show. That is the lowest for a three-year sovereign note in data going back to 2000. The 10-year yield increased one basis point to 2.66 percent.
The South Korean Ministry of Finance said it sold three-year bonds at a yield of 2.13 percent, and 30-year debt at 2.94 percent, according to statements on its Web site.
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