BOK says no Japanese capital outflow after quake

SEOUL (Yonhap) -- Japanese investors are not pulling their capital from the South Korean market despite speculation that they may repatriate overseas assets to finance Japan's post-quake rehabilitation, the central bank said Friday.
The 9.0-magnitude earthquake and fears about a nuclear crisis in Japan are raising speculation that Japanese companies and investors may repatriate funds from overseas to finance rebuilding costs by unwinding so-called yen-carry trades.
In yen-funded carry trades, investors borrow the yen at low interest rates to buy high-yielding and riskier assets. The unwinding of the carry trades strengthens the Japanese currency, which in turn threatens to crimp the country's exports.
The Bank of Korea, however, said that it has not spotted conspicuous movements of Japanese investors pulling their money from Seoul's financial markets.
"Further monitoring is needed, but as Japanese investors' holding of Korean stocks and bonds remains small, a potential capital outflow is expected to have a limited impact on the market," a BOK official said.
The financial watchdog cast a similar view, saying that there is only a slim chance that Japanese investors will pull their money from the local market in the short term in the wake of the devastating quake.
The Financial Supervisory Service (FSS) added that even if Japanese capital outflows take place, their impact on the South Korean market is expected to be limited, given the small size of investment by Japanese investors.
Japanese investors held shares worth 6.61 trillion won (US$5.83 billion) as of the end of last month, accounting for a meager 1.8 percent of the total foreign stock holdings, according to data compiled by the FSS.
Their holding of Korean bonds reached 708.2 billion won as of end-February, accounting for only 1 percent of the total holdings of foreign investors.