December 10, 2008 / 10:37 PM / 11 years ago

Japan to raise FX swaps with S.Korea to $30 bln-media

TOKYO, Dec 11 (Reuters) - Japan plans to expand its currency swap lines with South Korea, which has been hit by sharp falls in the won, to about $30 billion from the current $13 billion, Japanese business daily Nikkei reported on Thursday.

South Korean won KRW= has been depreciating amid worries about the global recession's fallout on its export-driven economy, and Seoul has been keen to boost a regional web of bilateral currency swap deals, called the Chiang Mai Initiative (CMI).

The reported step would be in line with an agreement reached last month by finance ministers from Japan, China and South Korea to consider expanding the size of currency swap arrangements between their countries. [ID:nN14458729]

Currently, Tokyo has two types of currency swap lines with Seoul — dollar-won and yen-won swap arrangements — in line with the CMI.

Under those arrangements, Japan can provide U.S. dollars worth up to $10 billion and Japanese yen worth up to $3 billion to South Korea.

The newspaper said the total amount of those swaps would likely be raised to around $30 billion and the two nations would reach an agreement during a meeting of leaders from Japan, South Korea and China this weekend in Fukuoka, southern Japan.

In theory, one possibility that may arise from the use of the yen-won swap pact is that South Korea could sell the yen that it borrows from Japan to buy dollars in the market, and then use those dollars to conduct won-buying intervention.

Data last week showed that South Korea’s foreign reserves fell again by $11.7 billion to $200.5 billion in November, the lowest level in almost four years.

Bahk Byoung-won, South Korea’s senior presidential secretary, said last week that South Korean authorities would make only make marginal interventions in the foreign exchange market due to a rapid depletion of the country’s foreign currency reserves. [ID:nSEO278114] (Reporting by Yoko Nishikawa; Editing by Diane Craft)

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