Seoul prepared for any backlash from launch

The South Korean government will take swift action against any abnormal signs in the financial market in the aftermath of North Korea’s missile launch, said Choi Sang-mok, first vice finance minister at an emergency meeting held Wednesday after the four-day Lunar New Year holidays.

“The government will take swift and stern action to stabilize the financial market if any signs of abnormality appear,” Choi said at the meeting. “There weren’t any unusual moves in the international financial markets and economies across the globe during the holidays even after the North successfully launched its missile.”

Since the regime of Kim Jong-un launched a long-range ballistic missile Sunday morning - the middle of Lunar New Year holidays in many Asian countries including Korea and China - stock markets were closed until Wednesday. Stock markets of China and Taiwan remain closed until Friday.

The credit default swap (CDS) premium of Korea’s five-year foreign exchange stabilization bonds traded on the New York Stock Exchange rose 70 to 76 on Tuesday, indicating that the country’s default probability slightly increased after the news of the missile launch.

The Ministry of Strategy and Finance viewed the rise in the CDS premium as modest and was relieved about a slight appreciation of the Korean won. On Tuesday, the won’s value against the dollar rose from 1,206.9 won to 1,197.7 won.

Market analysts around the world believe the latest North Korean provocation will have “limited” impact on Asian markets, according to Korea Center for International Finance.

“Considering that the firing was expected and that China and Hong Kong are on holidays, its influence on the Asian markets will not be significant,” a bond trader in Hong Kong was quoted as saying by Ahn Nam-ki, a researcher at the center.

Ahn also said market observers are more interested in other economic news such as the less-than-expected decrease in foreign exchange reserves in China and what U.S. Federal Reserve Chairwoman Janet Yellen may say next week.

Vice Finance Minister Choi also said that some major stock markets showed sharp falls on Wednesday, including Japan’s Nikkei decreasing nearly 4 percent during the day, but that was largely due to an upcoming U.S. Fed meeting.

The official said it is difficult to downplay the possibility of the market being volatile when the international community moves to impose sanctions on the North in the near term.

“The government will closely monitor the market on high alert,” Choi said. “It will also strengthen cooperation channels with international organizations and major countries including the U.S., Japan and China to seek cooperative measures on the North issue.”

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]