Korean won loses allure on signs of intervention

South Korea's won is losing its appeal to a growing number of global investors who detect signs that the central bank will step up efforts to weaken the currency as it marches to a third consecutive year of gains against the yen.

Japan and South Korea are major competitors in the global market for shipments of electronics, vehicles and other products, making the exchange rate between the two countries vital to companies from Hyundai Motor to Samsung Electronics.

The won reached a six-year high of 9.5129 per yen on September 25, near the strong end of the 9.50 to 9.60 range that Seoul-based broker Meritz Securities says local exporters can bear.

"The tolerance for currency appreciation has greatly diminished in South Korea," said Marcelo Assalin at ING Investment Management. "We should see a more interventionist bias going forward."

Bank of Korea governor Lee Ju-yeol has warned that the won's strength against the yen is hurting the economy, and finance ministry officials have said they are closely monitoring the exchange rate. Amundi Asset Management says it is now "underweight" on the won.

Deutsche Bank estimates the Bank of Korea has bought US$33.2 billion over the past four months to limit the won's strength. Buying of US dollars could get "more aggressive", particularly if the yen fell below 110 per dollar, the lender said in a report last month.

Hyundai and Samsung, the country's biggest exporters, both blamed the strong won for declines in their second-quarter earnings. While the Korean carmaker's share of the vehicle market in the United States is stuck at 4.6 per cent, Toyota Motor Corp's has risen to three times that level.