Surging Korean Won vs Yen Prompts Concern; The exchange rate between the two Asian countries is closely watched, as they compete head-to-head around the world to sell everything from smartphones to cars.

Surging Korean Won Prompts Concern

Samsung Declines on Worries Currency’s Strength Will Hurt Profits

ANJANI TRIVEDI

Updated Jan. 3, 2014 7:46 p.m. ET

The South Korean won fell against the dollar and yen after officials there hinted they were ready to intervene to curb the currency’s strength. The remarks from two South Korean finance officials came after the won hit a two-year high against the dollar last week and reached a five-year high against the yen Thursday.The exchange rate between the two Asian countries is closely watched, as they compete head-to-head around the world to sell everything from smartphones to cars. The won’s 17% rise against the yen since June has come as Tokyo has sought to weaken its currency to help kick-start the Japanese economy.

Also Friday, the euro dropped to a four-week low against the dollar, and the U.S. currency strengthened against the Swiss franc and U.K. pound.

In South Korea, the currency decline is spilling over into the stock market. South Korea’s benchmark index ended Friday at a four-month low, and technology giant Samsung Electronics Co. 005930.SE -0.99% was down 5.5% this week, in part because of fears the won’s strength will hurt its profits.

“We will strengthen our monitoring for offshore flows and, when needed, carry out stabilizing measures for financial and foreign-exchange markets,” said Bank of Korea governor Kim Choong-soo in an address to financial institutions Friday.

Those comments came on the same day South Korea’s finance minister, Hyun Oh-seok, said in a separate meeting with banking executives that the country is “monitoring the market flows,” adding that “we mustn’t be agitated by every positive or negative movement.”

In South Korea, the finance ministry directs currency policy, and the central bank acts on its behalf.

The comments helped push the won lower Friday. The currency weakened 0.4% to 1055.2 won to the dollar, and it was off 0.5% to 10.070 won against the yen.

While the South Korean central bank regularly intervenes in the foreign-exchange market to help smooth out volatility and in October bought some $2 billion to slow gains, the comments Friday indicated an increase in concern.

The won’s strength stands South Korea in contrast to many other emerging economies, where steep slides in foreign-exchange rates have become a point of concern for policy makers.

 

Central banks in Turkey and Brazil have intervened regularly in the foreign-exchange market to support their currencies, and Indian policy makers last year took a variety of steps to shore up the Indian rupee after it hit record lows. Excessive currency weakness can exacerbate inflation and put central banks under pressure to raise interest rates at a time when many emerging economies are struggling to expand faster.

Analysts expect Samsung to report a drop in operating profit when the company reports quarterly earnings Tuesday, in part because the strong won has driven up expenses.

“Samsung Electronics Co. is paying close attention to global foreign-exchange trends and is responding to [potential] currency risks by diversifying its currency portfolio,” a company spokeswoman said without elaborating.

Analysts say the won is unlikely to give up ground soon. Credit Agricole SA expects the currency will strengthen further against both the dollar and yen in 2014, forecasting that it could reach 8.87 won against the yen by December.

Separately, the euro dropped below $1.36 against the dollar Friday for the first time since Dec. 5. The common currency was the best-performing major currency in 2013 but has given ground in recent days as expectations of a relatively healthier U.S. economy have prompted investors to return to the dollar. The U.S. currency also rose 0.7% against the Swiss franc and 0.1% against the pound.

However, the greenback dropped against the Australian dollar, with Australia’s currency reaching a three-week high.