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Won Drops From Seven-Year High Versus Yen on Intervention Risk

The won fell from a seven-year high versus the yen amid speculation South Korean authorities will intervene to protect the nation’s overseas sales.

South Korea’s exports probably fell in May, Bank of Korea Governor Lee Ju Yeol said Tuesday, while the Finance Ministry’s top currency official warned last month that the government has stepped up scrutiny of the yen’s slide. More than half of 300 exporters surveyed by the Korea Chamber of Commerce and Industry said they were affected by weakness in the Japanese currency, the trade body said in a report.

The won retreated 0.6 percent to 8.99 against the yen as of 3:40 p.m. in Seoul, data compiled by Bloomberg show. It reached a seven-year high of 8.93 on Tuesday as the yen dropped to the lowest level versus the dollar since July 2007. The won fell 0.4 percent against the dollar to close at 1,105.57. It earlier declined to 1,108.96, the weakest since April 1.

 

“The market is wary about possible government action as the yen-won cross tests the 9.00 level,” said Jude Noh, the chief currency trader at Suhyup Bank in Seoul. “The yen is falling faster than the won, so the cross rate is likely to head downward.”

The yen has declined 2.6 percent against the greenback this year compared with a 1.3 percent drop in the won, according to data compiled by Bloomberg. South Korea and Japan compete to sell goods such as cars and electronics in global markets.

Yen-Won Rate

The average yen-won exchange rate that South Korean companies can endure in competition with Japan is 9.24, the Korea Chamber said. The won has averaged 9.51 against the yen in 12 months. A 10 percent cut in product prices by Japanese companies decreases South Korean exports by an average 11.7 percent, the trade group said Tuesday in the report based on a survey conducted from April 27 to May 6.

A weaker Japanese currency hurts the profit margins of South Korea’s exporters, while the effects on their prices and volume have been limited, the International Monetary Fund said in a report released May 22. Shipments in the first 20 days of May dropped 7.6 percent from a year earlier, Customs Service data showed May 21, suggesting overseas sales are set to decrease for the fifth month in a row.

Government bonds rose, with the yield on notes due September 2024 falling four basis points, or 0.04 percentage point, to 2.44 percent, Korea Exchange prices show. The three-year yield dropped four basis points to 1.81 percent.

original source: http://www.bloomberg.com/news/articles/2015-05-27/korea-s-won-declines-as-yen-drop-spurs-bok-intervention-concern

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