Efforts to Talk Up The Won Trigger Slight Value Rise

The value of the Korean won turned slightly higher Tuesday after the government said it was ready to stem its decline.

The won shed about 0.5 percent of its value to hit 1,355 won against the U.S. dollar in early trading before closing at 1,343.70 won, up 5.10 won, or 0.4 percent, from the previous day.

"Dealers sold dollars after the Ministry of Finance and Economy said that it would take action if the won reacts too sensitively to the Japanese yen's fall," said an official at the central Bank of Korea.

Kim Yong-duk, director of the ministry's international financial affairs bureau, said that the government will, if necessary, "control the supply" of dollars.

Attributing the won's slide to the yen's weakness, Mr. Kim said, "An excessive decline in the yen's value may become a stumbling block to export growth in the United States, whose trade deficit is over $400 billion." He added that the U.S. and Japan have never agreed to tolerate a weak yen.

Despite such remarks, experts say it is still possible for the Japanese and Korean currencies to fall further, suggesting that the yen may tumble to as low as 140 yen against the greenback because unstable Japanese politics will make it hard for the country to implement economic recovery measures. Therefore, they say, the won will likely fluctuate in parallel with the yen for at least the next few months.

The government has repeatedly hinted at its willingness to intervene in the foreign-exchange market to prevent a sudden weakening of the won, such as the one that occurred in late 1997 and led to a financial crisis.

Most experts warn the government against trying to control the supply and demand mechanism of the market. They note the fiasco in 1997, when the government used almost all of its foreign exchange reserves to defend the value of the won, but failed.

"It is more important to strengthen economic fundamentals by keeping up the restructuring efforts," said Cheong Mun-kun, head of the economic research division at Samsung Economic Research Institute.

The yield on the bellwether three-year government bonds dropped 20 basis points Tuesday to 6.46 percent as the won recovered.

by Kim Hyun-chul