Yen strength helps South Korean exporters stomach won resurgence

[SEOUL] South Korean exporters are finding a dose of yen strength is helping them stomach the won's resurgence.

While a March surge left the currency 2.4 per cent stronger versus the dollar this year, the won's 7.1 per cent slide against the yen is boosting the competitiveness of Korean cars and electronics to those made by Japanese rivals. In trade-weighted terms, the won has rebounded from a 2013-low reached in February, a Westpac Banking Corp index shows.

"The yen's appreciation has allowed the won to go up against the dollar without compromising Korea's export competitiveness," said Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank Ltd in Singapore.

"The yen-won rate is more important for the Bank of Korea." The won's slide to a 29-month low against the yen this year is a source of comfort for Korean companies facing a 15-month slump in exports and eases pressure on authorities to stem its strength versus the dollar.

The Finance Ministry, which carries out "smoothing operations" in the currency market along with the central bank, said in its latest monthly report that the decline in overseas sales is ebbing. The BOK kept its policy rate at a record low of 1.5 per cent for the 10th straight month on Tuesday.

"It's true the won is appreciating against the dollar, but it's not at a level that is concerning," said Kim Byung Yoo, director of analysis and forecasting at Korea International Trade Association.

"Considering the country has a current- account surplus, and that the economy may improve, it seems right for the won to appreciate." That's a turnaround from less than a year ago, when the association and other business groups called on policy makers to steady the won as it climbed to a seven-year high versus the yen while weakening against the dollar. The yen has surged 10 per cent against the greenback in 2016 after a 36 per cent slide in the past four years.

The won rose 0.7 per cent to 10.49 per yen as of 10.01 am in Seoul, after depreciating 0.3 per cent on Monday, data compiled by Bloomberg show. It reached 11.11 on Feb 24, the weakest since August 2013, and has averaged 9.71 in 12 months.

Kim Ki Hoon, the head of the BOK's foreign-exchange market team, declined to comment on the currency and exports.

The yen-won rate is in a "comfortable range" of between 10 and 11, and policy makers will only begin to worry should it go below 10, according to Macquarie's Mr Nizam. The won can still strengthen to 1,130 per dollar this quarter, from 1,150.38 on Monday, he said.

Even so, risks to are building up to the won's rally versus the greenback. The failure of President Park Geun Hye's ruling party to win a majority last week's parliamentary elections dented her ability to undertake economic reforms, which means the central bank may need to do more to boost growth, according to Roy Teo, a senior currency strategist in Singapore at ABN Amro Bank NV.

The BOK will cut its benchmark rate at least once by the end of this year, according to 11 of 23 analysts surveyed by Bloomberg. The won is forecast to weaken to 1,180 per dollar by June 30 and to 1,220 by Dec 31, separate Bloomberg surveys show.

The BOK is "cautiously managing monetary policy" amid a volatile economic situation, Governor Lee Ju Yeol was cited as saying on Friday in Washington, according to a Yonhap News report.

"The pace of the won's appreciation was rather steep recently, but around 1,150 against the dollar isn't a level that exporters need to worry about," said Seo Jeong Hun, economist at Seoul-based KEB Hana Bank.

"Still, if the won gains close to 1,100, the authorities may show willingness to intervene."

BLOOMBERG