Japan Can't Curb Yen's Gains by Acting Alone, Bank of Korea Governor Says

apan can’t resolve the difficulty of the strong yen unilaterally as currency-market intervention by a single country has limited effect, Bank of Korea Governor Kim Choong Soo said.
“Japan, alone, cannot resolve the problem of the strong yen,” Kim said at a media seminar in Incheon, southeast of Seoul, two days ago. “Japan will need policy coordination with others, including the U.S. and China. The effect is limited when one country tries to handle the issue by market intervention.”
Japan intervened on Sept. 15 for the first time since 2004 to protect its exporters, after the yen rose to a 15-year high against the dollar. The action stoked speculation that South Korea will move to counter a recent rise in the won, in an economy where overseas shipments are equivalent to about half of gross domestic product.
International trade has “significant impact on our relationship with other nations as we’re heavily dependent” on it, Kim said. His comments at the seminar were released today.
The won has risen 4.5 percent over the past three months and closed up 0.3 percent at 1,160.7 per dollar on Sept. 17. Further increases may hurt export competitiveness at firms such as Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, and Hyundai Motor Co., the country’s largest automaker.
Asked about international policy coordination on currencies, Kim said South Korea “is not in a situation to say something on the issue now and we need to see more how it affects our economy.” The yen has lost more than 3 percent of its value since Japan’s Finance Ministry sold the currency.
Interest Rate Policy
The Bank of Korea unexpectedly left its benchmark interest rate unchanged on Sept. 9, joining counterparts in Australia, Malaysia and New Zealand in pausing rate increases to assess the strength of the global recovery. A possible U.S. slowdown and persistent European fiscal problems are risks to growth, the central bank said after its decision.
Ten of 14 economists in a Bloomberg News survey projected a quarter-point increase to 2.5 percent, after Kim signaled on Aug. 25 that South Korea was alert to the risk of intensifying inflation expectations. The governor raised the benchmark by 0.25 percentage point in July from a record-low 2 percent.
The current rate of 2.25 percent “is not the most desirable,” though it will take some time to normalize as the bank must be certain of the world economic recovery, Kim said after leaving borrowing costs unchanged this month.
Asked about the central bank’s interest rate policy signals at the media seminar, Kim said “when we say we will take a right turn, then we will turn to the right -- the only matter is whether we will do it this time or next time. You should not believe that we’re not changing the direction.”
Exports fuelled a 7.6 percent expansion in South Korea in the first half, the fastest pace in a decade, and the economy will grow 5.9 percent this year, according to the central bank’s figures. The trade surplus will reach $32 billion in 2010, up from a previous forecast of $20 billion, the economy ministry said on Sept. 1.
-- Editors: Sunil Jagtiani, Paul Tighe
To contact the reporters on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net;