Korea warns currency speculators again, threatens intervention

Currency speculators were again warned by the government, which said it will intervene in the bond market if necessary.

The comments come as the won trades near 13-year lows against the dollar.

According to Bang Ki-sun, vice minister of economy and finance on Friday, the ministry will “take action to stabilize the market on signs of speculative movements.”

The ministry would not clarify whether it has intervened yet during this crisis.

Separately, the Bank of Korea may be intervening in the currency markets already based on declines in foreign reserve levels, although actual central bank interventions are only reported quarterly quarter delayed.  

In terms of a specific action, the government will buy back Treasury bonds and take steps to help curb a rise in bond yields, when needed, if the bond market becomes unstable, according to Kim.  

The won fell more than 10 percent against the dollar this year, punching through 1,300 to the dollar in June. It hit a 13-year-plus low on Aug. 23, trading at 1,346.60 won.  

The finance ministry argues that it is not so much a matter of a weak won or the country’s financial soundness but one of a strong dollar. The yen, the euro, and the pound are also falling.

“As there are concerns that herd behavior in the foreign exchange market could grow, the government will closely monitor the situation and take timely measures to stabilize the market if there are one-sided movements or a rise in speculative bets in the market,” Bang said.  

Bang added that the government will monitor the bond market as yields jumped following the Bank of Korea’s 25 basis point rate increase on Thursday.  

The yield on three-year Treasuries rose 22 basis points on the day, and the return on five-year government bonds rose 20.8 basis points.

Bang’s remarks were made just three days after the ministry warned against any currency manipulation.  

A falling won hits the economy hard as it contributes to trade imbalances as the cost of imports increases.

Korea reported a $25.47 billion trade deficit through Aug. 20 this year. It has reported trade deficits for four consecutive months through July. If it reports another trade deficit in August, it will be the first time the country registers a trade deficit for five months straight in 14 years.  

BY JIN MIN-JI [jin.minji@joongang.co.kr]