New gov’t may try to weaken won on markets

The Korean won depreciated slightly against the Japanese yen yesterday after President-elect Park Geun-hye said her government would take measures to intervene in the foreign exchange markets to help Korean businesses.

The local currency’s exchange rate rose 2.06 won from the previous day, closing at 1,156.94 won per 100 yen yesterday. The won strengthened against the U.S. dollar, however, with the exchange rate falling 2.7 won to close at 1,078.5 won.

The comments by President-elect Park, who will be inaugurated on Monday, came at a meeting with Han Duck-soo, chairman of the Korea International Trade Association (KITA), yesterday morning.

“The government will take pre-emptive and effective measures in response to changes in the foreign exchange market in a bid to prevent losses of local businesses,” she said. “I recognize that stabilization in the foreign exchange market is a very important matter.”

It was the first time the president-elect mentioned foreign exchange rates since the transition team for the next government was launched.

The president-elect’s spokesman Park Sun-kyu said the statement was made in response to the KITA officials’ request for government efforts to stabilize the foreign exchange market. KITA officials expressed worries about local exporters being hurt by the steady depreciation of the yen, which makes Japanese exports more competitive abroad and could eat into Korea’s own exports.

“The weak yen would dent price competitiveness of Korean-made products competing with Japanese products in overseas markets,” said Yoo Hwan-ik, a director at the Federation of Korean Industries. “There are concerns that the country might not be able to keep its $1 trillion achievement in trade this year.” In 2011, Korea became the ninth member of the $1 trillion trade club, countries that have exports and imports that surpass $1 trillion.

Economic think tanks estimate that Korean exports could drop by 6 percent if the yen weakens to the 100 yen to the dollar level. The yen’s value stood at 93.24 per dollar as of 4:25 p.m. local time.

A strong won hurts both big and small exporters in Korea, according to the Korean Chamber of Commerce and Industry. In a survey, 93 percent of 300 small companies said they have been hit hard by the strong won.

The won strengthened to an average 1,066 won against the U.S. dollar in January. The exchange rate sunk below the 1,100 won per dollar mark in November last year.

Earlier yesterday, Kim Choong-soo, governor of the Bank of Korea, made a statement suggesting possible intervention by the central bank in the foreign exchange market.

At a conference, Kim said speculative funds that take advantage of market volatility should be controlled. “Such speculative movement in the foreign exchange market should be prevented,” Kim said.

In January, Kim said the Korean central bank will embark on “active responses to minimize any negative impacts on exports” if the yen continues falling.

By Song Su-hyun [ssh@joongang.co.kr]