Top policymakers vow stern action against speculative FX market activities as won weakens

South Korean Authorities Pledge Stern Action Against Forex Speculation as Won Weakens

South Korea's top economic and financial policymakers have pledged to take stern action against market-disruptive activities and speculative trading as the Korean won continues its sharp decline against the U.S. dollar. The commitment comes amid growing concerns over excessive volatility in the foreign exchange market.

Finance Minister Leads Emergency Response

Finance Minister Koo Yun-cheol and other heads of financial authorities made the joint remarks during an emergency meeting on June 7, according to the Ministry of Finance and Economy. The meeting was attended by Bank of Korea Governor Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon, and Financial Supervisory Service Governor Lee Chan-jin.

Earlier, on June 4, Koo had vowed to take "immediate measures" when necessary to address excessive volatility, during a meeting with the same officials. The government said it is closely monitoring market conditions and would act to prevent external uncertainties from fueling market anxiety.

The won has fallen to its weakest level against the dollar since 2009, with the currency quoted at 1,539.1 won per dollar on June 5, down 9.4 won from the previous session — the weakest since March 9, 2009. The decline has been attributed mainly to heavy net selling by foreign investors amid fading expectations of a diplomatic solution to the Middle East war.

Government Vows to Curb Speculative Trading

The finance ministry said participants in the emergency meeting expressed concerns that heightened market volatility could weigh on the Korean economy. The officials agreed to investigate whether speculative activities are capitalizing on the weakening won, through inspections conducted by the Bank of Korea and the Financial Supervisory Service.

During a meeting on June 9 with senior officials from financial companies, including KB Kookmin Bank and the Seoul offices of BNP Paribas, HSBC and JPMorgan, Deputy Minister for International Economic Affairs Moon Ji-sung reiterated the government's commitment to tackling speculative trading that disrupts market order.

"The government will take stern actions against market-disrupting activities that damage market order or spark one-sided movements in the foreign exchange market," Moon was quoted as saying. He added that South Korea is preparing to inspect speculative trading in the foreign exchange market, with related bodies set to carry out on-site investigations.

Foreign Exchange Inspections Launched

On June 10, financial authorities launched probes into possible unfair trading activities in the foreign exchange market. The Bank of Korea and the Financial Supervisory Service will investigate banks handling foreign currencies, in line with the government's market stabilization efforts. The ministry said the investigation will examine whether there have been attempts to manipulate or fix exchange rates to gain unfair profits.

Financial authorities plan to take stern measures should they identify illegal activities by the banks, the ministry added.

The won remained above the 1,500-won level for the 16th consecutive session through June 9, a psychologically important threshold.

Customs Agency Uncovers Illegal Forex Trading

The customs agency has detected a combined 415.4 billion won (US$272 million) worth of illegal foreign exchange trading this year through May, the finance ministry said on June 10, amid government-wide efforts to curb market volatility.

The announcement came during a meeting with related bodies, including the central bank, the customs service and the spy agency. Examples of illegal trading include excessively prepaying import costs to overseas counterparts, using virtual assets for settlements, and falsely reporting lower export prices while keeping the difference overseas.

The government vowed to continue operating a special response team against illegal foreign exchange trading on a permanent basis, expanding its mandate beyond the originally planned end of this month.

Economic Indicators Remain Positive

Despite the currency volatility, Finance Minister Koo noted that the South Korean economy has shown signs of improvement. The Organization for Economic Cooperation and Development (OECD) has revised up South Korea's growth outlook for this year to 2.6 percent from 1.7 percent three months earlier.

"South Korea's expansionary fiscal policy has accelerated growth, which in turn improved fiscal sustainability, creating a virtuous cycle," Koo said during a meeting on June 5.

The finance ministry attributed the recent surge in the local stock market to temporary rebalancing by foreign investors as they cash in profits, leading to further volatility.

Financial officials noted that the South Korean economy remains solid, with exports soaring 53.2 percent on-year in May and the local stock market capitalization ranking as the world's sixth largest.