Won jumps after South Korea wows ‘strong determination’ over currency

SEOUL – South Korea’s won strengthened after the authorities said excessive weakness in the currency is not desirable and foreign exchange markets will soon see the government’s strong determination.

The authorities said on Dec 24 they had held a number of meetings over the last two weeks to discuss the won’s recent weakness, according to a joint text message from the Bank of Korea and the Finance Ministry.

The ministry also announced a number of new tax measures to help stabilise the foreign exchange market.

The won jumped as much as 1.4 per cent after the message to 1,460.00 per US dollar. That was after the currency had depreciated to 1,484.65 on Dec 23, close to the weakest level since the global financial crisis in 2009. 

Against the Singapore dollar, the won surged 0.9 per cent to 1,141.66. It still has fallen about 7.5 per cent against the Singapore currency in the last six months.

South Korea will introduce a new tax incentive plan for reshoring investment accounts to encourage the return of overseas investment capital to domestic markets, the Finance Ministry said.

The increased rhetoric comes as the currency nears the psychologically important 1,500 per dollar level – a threshold breached only during the global financial crisis and the Asian currency meltdown in 1997 – even after the authorities leaned on a raft of familiar defences in recent months.

The country’s National Pension Service was said to have sold US dollars to bolster the won, while South Korean brokerages have decided to halt new marketing of overseas equities. 

The authorities are pulling out all stops to stem the won’s decline. Officials have eased currency regulations to boost onshore US dollar liquidity, sought cooperation from major exporters, and stepped up efforts to alleviate pressure from residents’ overseas investment demand.

The won has still weakened more than 7 per cent since the end of June, the second-worst performing Asian currency over the period.

The sell-off has been fuelled by an exodus of foreign capital despite the boom in semiconductor exports, as well as local investors’ outbound investments and fears that increased investments in the US – planned as part of tariff negotiations – could put pressure on Korea’s currency market.

South Korea is not alone if seeking to bolster its currency this week.

The yen strengthened after Japanese Finance Minister Satsuki Katayama said the country has a “free hand” to take bold action against currency moves that are not in line with its fundamentals. Ms Katayama’s comments came amid renewed speculation that her ministry might intervene directly in the currency market. BLOOMBERG